Crosstec shares oversubscribed 1,000 times as Hong Kong’s IPO punters chase ‘easy money’

PUBLISHED : Monday, 05 September, 2016, 1:58pm
UPDATED : Monday, 05 September, 2016, 11:00pm

Diminishing prospects for a US interest rate rise combined with easy financing from banks and brokers have encouraged Hong Kong’s “IPO punters” to return to the market seeking higher-than-average returns.

Crosstec Group Holdings saw its share sale oversubscribed more than 1,000 times on Monday after retail investors flocked to the offering, making the Hong Kong-based interior designer the second-highest overbought public offering this year solely through margin orders.

The company offered 600 million shares at between 10 and 15 HK cents each, seeking to raise HK$90 million, of which 10 per cent was reserved for retail investors.

By the time Crosstec closed its books on Monday, retail investors had bid for HK$9.56 billion worth of orders backed by margin financing from seven brokerages, equal to a 1,061 times oversubscription.

“Market sentiment is improving as investors feel the US rate rise is unlikely to happen in September, so some turned to riskier assets for higher returns,” said Wing Fung Financial Group’s research head Mark To.

So-called IPO punters typically buy shares from initial public offerings, hoping to make a quick return by selling at a premium on the first day of trading.

The rush for Crosstec shares may have been led by a few investors who splashed vast sums of money, exploiting the availability of easy financing that required very little down payment, said Kwok Sze-chi, marketing director of Hong Kong brokerage Bright Smart Group.

Crosstec’s shares are scheduled to begin trading on the Hong Kong stock exchange on September 12. The interior designer’s earnings rose 18 per cent year on year to HK$23.78 million in the 12 months ended June 30, 2015, according to its listing prospectus. Net profit for the 10 months ended April 30 this year fell 71 per cent year on year to HK$6.23 million, largely due to HK$10.5 million in IPO expenses.

Market sentiment is improving as investors feel the US rate rise is unlikely to happen in September, so some turned to riskier assets for higher returns
Mark To, Wing Fung Financial Group

As many as 40 companies raised a total of HK$43.5 billion through IPOs in Hong Kong in the first six months of this year, making the city the world’s largest market for initial public offerings, according to PricewaterhouseCooper’s data.

Among the 40 new listings, 35 closed higher than the offering price on their trading debut.

A.Plus Group Holdings, a local financial printing service provider, and clinic chain operator MediNet Group were the biggest winners with shares surging more than 10 times on the first trading day.

Both companies listed on the Growth Enterprise Market board in the second quarter.

Among 25 listings on the main board, local equipment lender AP Rentals Holdings was the best performer with the stock ending at a 53 per cent premium on its first day of trading in April. However, its shares closed at 45 HK cents on Monday, 40 per cent lower than its offering price.

Based on closing prices on Monday, only 26 of the 40 listings were trading above their offering level.

The upbeat market mood may be helpful for the Postal Savings Bank of China, which this week kicks off a roadshow to attract investors to its US$10 billion Hong Kong IPO.

The state-owned bank, which operates as many as 40,000 branches in mainland China, may sell a US$2 billion chunk of its shares to China State Shipbuilding Co, a so-called cornerstone investor, to drum up optimism for the public offer, according to an August 24 report by Dow Jones.

“PSBC is not exactly the favourite of institutional investors nowadays,” Wing Fung’s To said, given lingering concerns over mainland banks’ bad debt and weak earnings.