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Chinese government entities remain a pillar of Hong Kong IPOs, but foreign investors have not lost interest

  • There are concerns that too much state involvement in Hong Kong IPOs could distort pricing and weaken market discipline

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Foreign institutional buyers may be making a comeback in Hong Kong amid improved market sentiment. Photo: Yik Yeung-man
Aileen Chuang

Local government entities in mainland China continued to play a significant role in Hong Kong’s initial public offerings (IPOs) in the second quarter of the year, but foreign institutional buyers may be making a comeback amid improved market sentiment.

Provincial and municipal governments, councils and investment vehicles owned by local authorities took part in a third of the 18 IPO deals in the second quarter as cornerstone investors with lock-up conditions, according to data compiled by the Post.
The figures illustrate the broader trend of more state-linked support for new offerings since last year in Asia’s third-largest stock market. However, data shows that the percentages of shares that government-related entities are taking has fallen.
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In the three months to June, at least nine government-related bodies took up an average of 24 per cent of the shares on offer. In the previous 15 months, 43 entities accounted for around 33 per cent of the IPO shares, with one local government body taking 79 per cent of the shares in one deal, leading to concerns by investors that too much state-linked involvement could distort pricing and weaken market discipline.

Tianju Dihe (Suzhou) Technology, a provider of application programming interface services that raised HK$401.5 million (US$51 million), received HK$172 million, or 43 per cent of the offered shares, from entities ultimately owned by Suzhou Industrial Park Administrative Committee, and Xuzhou Economic and Technology Development Zone Management Committee. On its first trading day of June 28, the stock slid 27.8 per cent from its IPO price.

While local Chinese government money has remained a significant pillar of Hong Kong’s IPO market, international investors have been watching, and some have started taking part in deals again, according to market participants.

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