China's largest retail chain Lianhua Supermarket Holdings will reallocate 30 per cent of its Hong Kong initial public offering (IPO) shares from the institutional tranche to retail investors in response to strong interest. After exercising the claw-back option, 40 per cent of Lianhua's 150 million H shares would be sold to retail investors, a source close to the deal said. Lianhua raised $581.25 million from the issue after pricing its IPO shares at $3.875 each, about 18 times last year's earnings and towards the high end of the earlier range of between $3.17 and $4.17. Ignoring concerns about Lianhua's thin profit margin, retail investors last week oversubscribed the 15 million shares originally reserved by 80 times. The offer's institutional tranche was more than 10 times oversubscribed. 'The response has been good along with a lot of the IPOs in Hong Kong,' First State Investments senior portfolio manager Martin Lau said. 'That reflects the fact that China shares have gone up a lot. Some people may think the IPO is a good way of catching up on some performance.' The H-share index has risen 35 per cent this year. 'I think people are just waiting for more consumer stocks from China,' ING Financial Markets China analyst Lilian Leung said yesterday. The mainland's solid consumption and rising household income gave investors high hopes for China consumer stocks, she added. Given the strong investor response and recent gains of China stocks, Ms Leung expressed surprise that Lianhua's IPO had not been priced more aggressively. The source close to the deal said the relatively conservative pricing was to avoid a repetition of the government-backed property play Beijing Capital Land listing debacle. Beijing Capital Land closed flat on the first two trading days after its Hong Kong main-board debut last Thursday, with listing sponsor HSBC rumoured to have intervened to prop up the share price. The shares fell 4.81 per cent yesterday as the H-share index edged down 0.97 per cent. Lianhua is scheduled to float on the Hong Kong main board on Friday.