China’s Cofco Meat slumps on first trading day in Hong Kong

PUBLISHED : Tuesday, 01 November, 2016, 6:10pm
UPDATED : Tuesday, 01 November, 2016, 7:02pm

Cofco Meat Holdings, the pork producing unit of China’s largest state food conglomerate, saw its market value slump by as much as 24 per cent on its first day of trading in Hong Kong, putting it on track for one of the worst first-day performances among the city’s major initial public offerings this year.

The meat supplier, partly-owned by KKR and Baring Private Equity, opened in the morning about 6.5 per cent below HK$2.00 set for the offering of its 975.6 million shares – already at the bottom end of its marketed price range as a result of tepid investor appetite.

Shares closed Tuesday at HK$1.66, down 17 per cent from the float price. The benchmark Hang Seng Index edged up 0.93 per cent.

JPMorgan and Morgan Stanley were joint sponsors of the US$251 million IPO, according to filings to the Hong Kong stock exchange.

“Cofco Meat only managed to turn to profits last year following two years of losses, which obviously did not offer a good reason for investors to buy,” said Sam Chi-yung, a senior strategist with South China Financial Holdings.

The floundering debut of the Beijing-based hog producer drew parallels to a slew of companies whose shares limped out of the starting gate after high-profile IPOs over the last a few months.

China Resources Pharmaceutical, the country’s second biggest drugmaker, and Postal Savings Bank, the world’s largest IPO this year, both failed to ignite investor enthusiasm on their debut, after raising billions of US dollars in their mega public offerings.

Cofco Meat only managed to turned to profits last year following two years of losses
Sam Chi-yung, South China Financial Holdings.

Local media reported Ma Jianping, president of Cofco Meat, saying Tuesday morning that “it was common to see stock price volatility”.

Last week, rival WH Group, the country’s biggest pork producer, plunged the most in almost two years after its second biggest shareholder private equity firm CDH slashed its holding to 12.94 per cent after selling HK$10.6 billion through a share placement.

WH Group’s main subsidiary Shuanghui Development posted worse-than-expected third quarter earnings, with its net profit slipping 0.96 per cent from a year earlier.

China’s pork prices entered a downward spiral starting from June, while high inventory costs continued to weigh on the bottom line of the country’s leading hog producers, analysts said.

Cofo Meat’s cornerstone investors include Haier Group, which committed US$57.4 million, and China Life Insurance, the country’s biggest insurer, which agreed to invest US$20 million.