Weak demand for Qingdao Port IPO sours market sentiment
Weak demand for mainland firm's shares raises concern over Hong Kong's cooling IPO market
The outlook for Hong Kong's once-hot initial public offering market is looking increasingly murky after the share sale by the mainland's Qingdao Port Group received a tepid response from investors.
Unlike most offerings in Hong Kong, the listing of Qingdao Port International, a state-owned port operator in Qingdao, Shandong province, led to a paltry demand for margin financing services provided by brokers to retail investors, a common way for small players to leverage their position to get more shares, especially in red-hot offerings that have a higher chance to pop on their first day of trading.
Battered by an economic slowdown on the mainland, 16 out of 21 newly listed firms, including Li Ka-shing's US$3.1 billion HK Electric Investments, were bleeding red ink, while the Hang Seng China Enterprises Index, which tracks listed mainland enterprises, has fallen 7 per cent so far this year, making it one of the worst performers in Asia after Japan.
"Concerns over [market] volatility were dampening sentiment across all asset classes," said Michael Huddart, Manulife's executive vice-president and general manager for the Greater China region.
Eugene Law, a director at Galaxy Securities International, said mom-and-pop investors shied away from investing in new offerings as they focused on buying safe blue-chip stocks at a time when the market was range-bound.
Huddart said the somewhat depressed sentiment in Hong Kong towards different asset classes, including equities, should prompt some investors to look for bargains in the market.
Qingdao Port had planned to sell 776.38 million new shares at HK$3.76 each, but it has trimmed its deal size to about HK$2.5 billion from an original plan of US$500 million, or HK$3.9 billion, partly after a failed offering by WH Group, the world's largest pork producer.
To increase the possibility of a successful listing, it secured six cornerstone investors who are committed to buying a large stake before the launch of the flotation and agree to hold the shares for a certain period, to raise HK$1.3 billion, or more than half of the entire deal.
Several other listing hopefuls are on schedule to launch their roadshows next month, but bankers are carefully gauging feedback especially when liquidity in the market is notably shallow.