Dynam Japan, the first Japanese company to go public in Hong Kong, had a poor run on its debut yesterday even as the overall market jumped over 330 points.
Dynam shares fell 10.4 per cent to close at HK$12.54 on the first day of trading, while the benchmark Hang Seng Index was up by 1.7 per cent. Looking to raise up to HK$1.5 billion, the Tokyo-based company had priced the stock at HK$14 apiece, at the low end of a pricing range of HK$14 to HK$16.
'There were reports before the listing that the pachinko company was involved in money laundering,' said Francis Lun Sheung-nim, managing director of Lyncean Securities. 'Investors got scared, though Dynam denied the news.'
A pinball game comparable to slot machines in the West, pachinko is a favourite Japanese pastime.
Brushing aside such fears over pachinko as the reason for the poor response, HKEx's head of listing Mark Dickens said the Hong Kong exchange is very particular about disclosure. 'First, this industry is accepted in the country where it is practised. And second, it provides full disclosure like the casinos in Macau that were listed [here].'
HKEx chairman Chow Chung-kong said there was no evidence of Dynam's involvement in any illegal activity. Pachinko companies are legal business entities in Japan and gaming firms can list in Hong Kong, according to the law, he said.
Lun said the poor performance of Dynam on its first day would not dampen the enthusiasm of other Japanese firms planning to list here. 'Pachinko companies can't list in Japan because of their involvement with triad groups. If one of them has listed in Hong Kong, the others will follow. Just as Samsonite followed Prada.'
Lun said Japanese companies were operating in a lacklustre market as the nation was ageing and the population shrinking. 'It is impossible to achieve remarkable growth in that market,' he said, adding that a Hong Kong listing was a good option for them as it provided the Japanese companies with much-needed cash while their main shareholders retained control.
More than 10 Japanese companies - including pachinko operators, clothing companies, car parts and consumer-product manufacturers - are preparing to list in Hong Kong, according to Eugene Liu, partner of RSM Nelson Wheeler, the Hong Kong branch of RSM International, a global network of accounting firms.
Lun said interest in Dynam may pick up if market sentiment improves and the company's performance is satisfactory. 'And if it pays a high dividend, then it can be attractive.'
Dynam has said it will distribute 45 to 50 per cent of its profits as dividends. The company, with 355 pachinko halls in 46 of 47 prefectures in Japan at the end of March, is the country's No 1 pachinko operator by the number of halls.
It is not the only Hong Kong debutant whose stock has failed to catch on this year. New listings are on average down 7.6 per cent from their offer prices, according to Bloomberg data.
This year's new listings in Hong Kong are down by an average of this much from their offer prices