Shares in China Machinery Engineering, a state-controlled engineering contractor in the power sector, rose sharply on its debut in Hong Kong yesterday, offering a surprise bonus for investors on a bleak day.
The Beijing-based company, which had priced its shares at the top end of the indicative range, jumped up to 19 per cent at one point before ending the day 16.7 per cent higher than its offer price of HK$5.40. The Hang Seng Index lost 0.8 per cent on the day.
The stellar performance reflected renewed buying interest in companies with attractive valuations as the market expects more hot money to flow into the city, said two bankers familiar with the deal who did not want to be identified.
China Machinery's US$498 million share offering was one of biggest deals in Hong Kong this year, after mainland insurer PICC Group's US$3.55 billion listing, which was the city's largest initial public offering (IPO) in two years.
One of the bankers said the company's state-owned status is a source of confidence for long-only institutional investors, who were the most active buyers yesterday.
Institutional investors are also keen to build up a sizeable stake in the company that provides significant exposure to developing markets, where earnings and sales are expected to grow rapidly.
Yang Wansheng, chairman of China Machinery, said: "With 30 years of overseas experience, the company will continue to expand abroad and has no plans to get into the China market."
About 52 per cent of the net proceeds from the IPO will be used for financing the company's overseas power projects and 24 per cent to finance transport projects, according to the firm's listing prospectus.
China Machinery has projects in Malaysia, Indonesia, Thailand and the Philippines.
"After the successful listing of PICC in early December, investors have gathered confidence in new shares offered by state-owned enterprises," one banker said, pointing out that PICC's solid debut came as a surprise after a series of dull listings.
Joining the latest year-end listing rush, Wison Engineering, a private engineering company specialising in petrochemical and oil refineries, and China Silver, a refiner of the grey metal, are poised to raise up to a combined US$300 million in Hong Kong.
The city lost its crown as the world's largest listing hub this year after a three-year run at the top as most large state enterprises have already gone public in the past decade, reducing the scope for big offerings.
Much of the fundraising activity this year has thus centred on block trades, bond issues and the significant involvement of cornerstone investors.
In a bid to make its listing successful, China Machinery secured five cornerstone investors who bought shares worth a total of US$165 million, representing 33 per cent of the entire offer.