Bookbuilding closed late last week for the relaunched initial public offering of Haitong Securities, the mainland's third-largest broker by revenue, bringing welcome activity to Hong Kong's lacklustre new issue market. The US$1.67 billion offering will be the largest IPO in Asia so far in 2012 when it debuts on the Hong Kong exchange on Friday.
The deal was not a blowout but it did get done, offering some hope that Hong Kong's IPO market may be spluttering back to life.
Other listing candidates - such as Fosun Pharmaceutical, Inner Mongolia Yitai Coal or even China Everbright Bank - may take the occasion to dust off their own mooted floats.
So what has changed since Haitong Securities aborted its IPO last December?
For starters, market conditions have improved. As of the end of last week, the price of Haitong Securities' A shares (yuan-denominated shares listed on the Shanghai Stock Exchange) had increased by 22 per cent since mid-December. And the price of rival Citic Securities' shares in Hong Kong has also jumped more than 23 per cent since its Hong Kong listing last October - a sign that sentiment has changed for the better for mainland brokerages.
Haitong Securities has also beefed up the presence of 'cornerstone' investors - tycoons or firms that commit to buying an IPO at the offer price, ahead of its market launch. But while no fewer than 11 such investors had signed up for a combined US$580 million, effectively pre-buying one-third of the shares on offer, a single one, PAG Capital Partners, chipped in for US$300 million. The others included hedge fund manager D.E. Shaw & Co, several Asian banks and brokers (a number of which are from Japan), but only one sovereign wealth fund - from the Middle East. Most of these placed orders for amounts from US$12 million to US$30 million, considerably less than one would normally expect cornerstones to commit to a billion-dollar-plus offering.
The banks involved had also lined up some anchor investors, which are neither named in the prospectus nor commit to hold the shares for a set period. Among these were Singapore's GIC as well as Chinese insurers China Life and Ping An Insurance.
Pricing was sweetened in relation to Haitong's prevailing market price in Shanghai. Brokers' equity valuations are generally computed on the basis of a ratio of market capitalisation to book value, otherwise known as price-to-book.
In comparison, Haitong's A shares traded on April 20 at a price-to-book of about 1.9 times.
For the Hong Kong listing, the deal was priced at HK$10.6 per share or about 1.3 times price-to-book, towards the lower end of the indicative range. Citic Securities, like other mainland brokers, trades more expensively at a 1.7 times price-to-book. Some changes were also made to the syndicate of underwriters, with the addition of a global co-ordinator and a bookrunner, respectively, to the roster of banks.
Haitong is smaller and more domestically oriented than Citic Securities (which may also now buy its partner Credit Agricole's stake in Hong Kong-based CLSA, thereby further boosting its international credentials). So its prospects are perhaps more immediately tied to a soft landing for China, where it has been rattled by challenging markets and has also lost some ground in securities brokerage.
The float was designed to create marketing momentum: 'formal' selling to institutions was slashed from the usual two weeks to one.
The initial size of the retail offering was reduced from the standard 10 per cent to only 5 per cent, as befits larger IPOs in Hong Kong. But this was perhaps also an indication that the lead banks were not expecting blowout demand from individual investors, who still lack enthusiasm for new issues.
It looks like the belt and braces approach has paid off.
The proceeds should help Haitong with growth, especially with strategic acquisitions overseas. But its fortunes are tied to that big unknown - the market.
Philippe Espinasse, an ex-investment banker, is the author of IPO: A Global Guide (HKU Press)