China bad debt manager Huarong has mediocre start to Hong Kong trade
China's largest distressed-debt manager fizzled in its Hong Kong trading debut on Friday, with investors wary of the listing's tight liquidity in a sector that has disappointed in the past.
Shares in China Huarong Asset Management finished 0.64 per cent lower at HK$3.10 after the firm raised HK$17 billion in the market's largest initial public offering so far this year. The shares were already priced towards the bottom end of an earlier marketing range.
With more than 70 per cent of the free float allocated to mostly state-backed cornerstone investors, "people were questioning whether there was a P in the IPO", said Keith Pogson, financial-services senior partner at EY.
The unusually high percentage of cornerstones means those shares are locked up for at least six months, limiting daily trading volumes. Even so, there was "not going to be any surprise upside in the short term" for Huarong investors, who were likely looking for stable yield, Pogson said.
Huarong was one of four asset managers created by the Ministry of Finance in 1999 to offload heaps of bad debt from the country's commercial banks. For investors, such entities are sometimes seen as a hedge against banks; when loans sour and bank stocks are down, asset managers can snap up debt on the cheap.
Priced at 1.1 times book value, Huarong's offer price was also too expensive, said GEO Securities chief executive Francis Lun Sheung-nim, as investors questioned why they should pay a premium to rival China Cinda Asset Management, which listed two years ago. That stock has dropped more than 30 per cent since.
Analysts also expect more competition in the sector. Huarong chairman Lai Xiaomin recently said easy internet financing had led private banks and insurers to try to enter the asset management business.