Hong Kong’s IPO market falters as Hang Seng reaches 2016 high
Hong Kong’s stock market index may have hit a 2016 high on Monday, but celebrations were subdued after one company suspended its initial public offering (IPO) due to lack of interest from investors and another reported scarce order on its first book building day.
Ausupreme International Holdings, a Hong Kong-based health and personal care products retailer, postponed its initial public offering due to insufficient subscriptions in the international tranche, where 90 per cent of its offering was assigned.
The firm, which had planned to debut on Tuesday, said its share sale was oversubscribed in the retail tranche but saw “unexpected inadequate subscription” by underwriters handling the international placements, according to a company filing to the Hong Kong exchange on Monday.
Subscribers will be fully refunded, including brokerage and transaction fees.
On the same day, the city’s benchmark Hang Seng index rose for a third consecutive trading day and recorded its biggest daily gain in four weeks, rallying 1.57 per cent to 22,494.76.
Ausupreme, which sources products from Australia, was seeking up to HK$225 million by selling 187.5 million shares at an indicative price range of 80 HK cents to HK$1.20, of which 10 per cent of shares were for retail investors. The IPO was sponsored by Ample Orient Capital, with three joint bookrunners, Ample Orient Capital, Great Roc Capital Securities and Ping An Securities, according to its prospectus.
Tung Shing Securities market strategist Ivan Li said the failure was possibly due to the bookrunners having a limited network to find enough institutional buyers.
Mark To, head of research at Wing Fung Financial Group, said it was also a reflection of the different interest level between retail and institutional investors.
“General market sentiment is not bad [and] Ausupreme’s brand is quite popular in Hong Kong, so we see a lot of retail investor interested in the company,” To said. “But institutional investors may have other concerns, such as the long-term return of their investment.”
Some market watchers were even concerned that Ausupreme might be a shell company, given that the fundraising target was so modest in comparison to more than HK$40 million in listing expenses. The company’s management denied this, but such concerns could have dampened investor interest as regulators have tightened rules on shell companies.
Separately, Everbright Securities Company, China’s twelfth largest broker by total assets, opened the retail book on Monday for its HK$9.02 billion H-share offering. However, it received only HK$8.3 million worth of margin financing orders on the first day, well under its fundraising target, data from six brokers showed.
The Shanghai-listed securities firm is offering 680 million H-shares at between HK$11.8 and HK$13.26 per share. It promised no less than 10 per cent of the distributable profit as dividend, and announced a spin-off listing plan for its Hong Kong operation to take place sometime between January 1, 2017 and June 1, 2018.
This is the second mainland broker to sell H shares in Hong Kong after China’s stock market rout in mid June 2015, following the listing of DFZQ last month.
Eight cornerstone investors, including China Life and China Shipbuilding Capital, have subscribed to nearly 70 per cent of Everbright’s offering.
Li said these mainland cornerstone investors have paved the way for Everbright’s listing in the city, even if it in unable to achieve the full subscription in the retail tranche.