China IPOs face lukewarm sentiment in Hong Kong

Cautious market reaction dampens float plans from four mainland firms, though improving sentiment in the US may offset local conditions

PUBLISHED : Friday, 28 February, 2014, 1:10am
UPDATED : Friday, 28 February, 2014, 5:07am

Four private companies from the mainland, including a microfinance firm and a theme park operator, have started marketing their initial public offerings (IPOs) in Hong Kong, looking to raise a total of about US$1 billion.

Their fund-raising plans in the city come at a time when market sentiment remains lukewarm and investors are looking for more clarity on the mainland's economic outlook and the health of its banking system after the yuan suffered its steepest weekly fall against the US dollar.

Hanhua Financial, a mainland microcredit lender that specialises in making small loans to small and medium-sized firms in the municipality of Chongqing and Sichuan province, is looking to raise up to US$367 million (HK$2.85 billion) by selling 988 million shares, or 22 per cent of its enlarged capital at an indicative price range between HK$2.28 and HK$2.88 apiece.

The listing of the microfinance firm, which said its net profit margin last year was expected to drop due to an increase in provisions and default payments in November and December, has captured US$40 million from two cornerstone investors, representing about 11 per cent of the entire offering.

Shandong State-owned Asset Investment, an investment unit of Shandong's provincial government, has invested US$30 million in the Hanhua deal, while Jun Yang Solar Power, a Hong Kong-listed company whose share price has tumbled almost 70 per cent over the past year, has pledged another US$10 million.

Hanhua's net profit dropped by a third to 273.9 million yuan in the first 10 months of last year compared with the same period a year earlier, while its return on earnings, a metric of profitability, fell sharply to 8.5 per cent from 22.9 per cent, according to its preliminary listing prospectus.

Offerings of mainland financial firms have a poor track record. Shares in China Everbright Bank, the largest IPO in the city last year, have dropped more than 20 per cent since listing in December, while shares in Bank of Chongqing, the first listing of a mainland city commercial lender, have given up more than 17 per cent since the IPO in June.

On a brighter note, bankers said overall listing conditions in Hong Kong had improved moderately after blue-chip technology offerings in the US boosted sentiment and the US Federal Reserve seemed likely to maintain a low interest rate policy to the end of next year.

Joining the listing queue, Dalian Haichang, the first theme park listing in Hong Kong, has captured US$30 million from two cornerstone investors, or 10 per cent of its planned HK$2.7 billion listing. The theme park operator starts book-building today, with pricing scheduled for March 8.

Meanwhile, property developer Sunshine 100 China has been taking orders from retail investors for its HK$2.4 billion offering, and Sunfonda, a Shanxi-based luxury car dealer, has captured US$10 million worth cornerstone investment from Hong Kong-listed China Taiping Insurance ahead of its HK$683 million offering.