Peoples' woes as punters wise up to sickly IPO market

Like many a rugby fan the morning after the Hong Kong Sevens, the local IPO market is looking rather grey and sickly after a euphoric start to the year. Rich first-day gains were sweet while they lasted, but elation has now given way to a hangover as an increasing number of issues leaves investors nursing losses.

The latest to disappoint is Peoples Telephone, which has struggled to find buyers for its IPO. Even priced at the bottom of its range, listing sponsor UBS has had to pick up HK$12.5 million worth of shares earmarked for retail investors.

How quickly sentiment has come full circle since China Life Insurance's groundbreaking US$3.4 billion launch in December. Equity markets are notoriously capricious, but the seeds of the current malaise were arguably sown by questionable deals fed to starry-eyed investors since earlier this year. Twice-bitten-once-shy is the market's new motto.

If an investment bank leads a bad deal, it risks losing future mandates. But it can also turn off the equity tap for other issuers waiting in line - good and bad alike.

The controversial back-door listing of Hutchison Global Crossing via Vanda Holdings was the first to burn the fingers of mainly retail investors, just before the stock exchange finally moved to block this conveniently obscure entrance to the market.

Another Hutchison creation, Tom Online, fared little better when it later came through the front door. These deals - both led by Citibank - raised more than HK$3 billion, but also gave advance warning the new issues market would not support any deal.