A mild recovery in Chinese stocks is fuelling a fresh wave of small-cap initial public offerings aimed to take advantage of improved listing prospect based on hopes that the US Federal Reserve will extend quantitative easing.
A broad-based rally in the region's markets was triggered by the change in sentiment after the figure for first-quarter US economic growth was revised down to 1.8 per cent from 2.4 per cent.
At least five small-cap firms rekindled their listing plans and kicked off their roadshows yesterday as the city's benchmark Hang Seng Index rose for a third day after a sharp selldown since the middle of the month.
As some of these listing hopefuls failed to outline a clear business strategy that differentiates them from their peers, a common strategy under the rough market conditions was to offer a wide price range for the IPO. In one or two cases perhaps, the firm might be looking, once listed, to sell itself as a shell company a few years down the road.
In a show of tentativeness, China Golden Phoenix, a manufacturer of crystallised stone, quoted a price range that would translate into the firm raising between HK$280 million and HK$840 million.
Mainland property developer Modern Land (China) plans to raise up to HK$944 million, while Wisdom, a Beijing-based media and advertising firm, started bookbuilding yesterday in the hope of raising up to HK$1.12 billion through a float after capturing at least US$20.9 million in four cornerstone commitments.
Hong Kong's recent listings have come to market in a tough environment, with more than half of the 62 newly listed companies since the beginning of last year ending up underwater.
Consumer firms accounted for half of the 10 worst-performing stocks, according to Thomson Reuters data.
There is no apparent correlation between the offering size and the post-listing price performance, though some may wonder whether shares in small firms will substantially outperform those of big ones after the IPO.
As it turns out, firms listed on the Growth Enterprise Market, Hong Kong's alternative listing venue - including Beijing Tong Ren Tang Chinese Medicine and PPS International, a local contractor that provides cleaning services - saw their shares shoot up to more than triple their offer price on average.
On the contrary, shares of two state-owned firms, China Galaxy Securities and Sinopec Engineering, fell below their IPO prices after the mega listings.
Local retailer S.Culture and China Aluminum Cans, a mainland manufacturer and supplier of metal products, are looking to raise a combined HK$200 million by offering their shares at significant discounts to those of their industry peers.