The listings of two large state-owned enterprises have captured sizeable demand from fund managers, breaking the gloom of Hong Kong's long-suffering IPO markets.
China Galaxy Securities (the mainland's sixth-biggest brokerage firm) and Sinopec Engineering (a spin-off from Sinopec) are preparing to raise a combined US$3.6 billion through Hong Kong listings.
Sinopec was opened to public investors on May 10, while Galaxy's public offer started on May 9.
The mood among bankers working on the deal is buoyant: these deals are cruising to an easy success, signalling positive trading gains on debut. Perhaps they will not repeat the 115 per cent first-day gain registered by Tong Ren Tang Chinese Medicine last week, but the offers have clearly caught a wave of positive momentum.
Both entered marketing with ample support from cornerstone investors, who committed to staying in the offer for six months in return for a guaranteed allocation of shares.
The Sinopec and Galaxy IPOs were fully subscribed on the first day they were offered to fund managers. At the time of writing the order book for Sinopec was covered four times, and the book for Galaxy was covered three times. This suggests that both deals will be priced at the top of their indicated ranges.
Bear in mind the indicated price range for the Sinopec and Galaxy offers is wide: on both offers the price at the top end is about a third larger than the price at the bottom of the range.
That reflects the fact that these deals come after a long IPO drought on the Hong Kong market. The banks leading the deal are cautiously feeling their way forward. Pricing at the very top of the indicated range might result in lacklustre trading, at least on day one.
But at the mid-point the shares of both listing hopefuls would be at a 10 per cent discount to industry peers, which leaves open the possibility of a nice trading bounce on their debut.
Investors like the fact that both entities are state-backed, bankers say. The market conditions are definitely right. The deals are capitalising on aggressive money-printing programmes unfolding in Japan and the United States, which are creating a wall of fresh capital every day that needs to be invested. In addition, a series of positive economic data from the US has pushed the Dow Jones to fresh records, fuelling optimism for Asian equities.
If Sinopec and Galaxy trade well, this will open the floodgates for a bunch of other IPO hopefuls. This includes cash-strapped municipal-level banks, and the mooted mega-listing of Alibaba Group, China's biggest e-commerce firm.
China Everbright, a mid-sized lender already listed in Shanghai, is once again looking to list in Hong Kong, after several failed attempts. It plans to raise US$1.5 billion. Alibaba, controlled by a former English teacher, Jack Ma Yun, is preparing a huge stock offer that could value the internet giant at as much as US$100 billion.
Meanwhile, Hong Kong property developers are lining up spin-off listings of their hotel assets. Great Eagle is marketing its listing of luxury Langham hotel chain to raise US$800 million, and Hopewell HK Properties is expected to follow with its own US$1 billion hotel listing, with New World Development just behind.