China Tower’s IPO gets cool retail response as trade tensions and unstable markets keep investors cautious
Brokers say only about 21 per cent of the retail offer has been taken up, although the international portion has had more success
China Tower, the world’s biggest telecoms transmission tower operator, saw a lacklustre response from retail investors on the second day of its US$8.7 billion Hong Kong IPO, as many potential buyers took a cautious approach in the face of market volatility and global trade tensions.
Anecdotal evidence from seven of Hong Kong’s main stockbrokers showed retail investors had subscribed to around HK$720 million (US$91.7 million) worth of shares, only about 21 per cent of the amount available.
“This is a huge IPO, coming at a time when the stock market is volatile,” said Alvin Cheung, associate director at Prudential Brokerage.
“It’s a Chinese state-owned giant with stable earnings, and has promised a 50 per cent dividend payout ratio. I don’t think Hong Kong investors are worrying about whether it’s a risky business.
“But the overall market is weak as the US and China are in a tense trade battle. Investors have become defensive or have set tighter budgets for IPO subscriptions. I think many are holding off their decisions until the last day [of the public offering].”
The portion of China Tower’s offer for international placement has been oversubscribed, however. Analysts have attributed that to the fact that the company is state-owned and has stable revenues, which would appeal to passive investment funds.
China Tower offered 43.114 billion shares at a range of HK$1.28 to HK$1.56 each, aiming to raise as much as HK$68.1 billion, the largest IPO in the world in nearly four years. Of the offer, 5 per cent was for retail investors, with the rest in the international placement tranche mainly targeting institutional investors.
The company started taking orders from institutional investors on Monday and launched the offer on Wednesday. The stock is expected to debut on August 8.
The slow retail response contrasted sharply with other recent Hong Kong IPOs. Chinese smartphone maker Xiaomi offer was oversubscribed by 0.7 times even on the first day of public offering, and at the end of the offering it was overbought by 8.5 times. Ping An Good Doctor and China Literature saw even greater demand in their offers earlier this year and late last year, respectively.
Li Xiang, an analyst for Chinese securities firm Essence International, advised investors to be cautious over China Tower’s IPO.
“China Tower’s profitability is limited. The probability is relatively low for the company to pay any dividend in the short term,” he said in a recent research note.
He noted however that the company’s earnings were stable and its valuation was cheaper than its US counterparts, with the ratio of its enterprise value to earnings before interest, taxes, depreciation and amortisation at a range of 8.5 to 9.7.
The company also has little bargaining power with its main clients, China’s top three telecoms carriers – China Mobile, China Telecom and China Unicom. These companies contributed 99.8 per cent of China Tower’s revenue last year, and are also major shareholders.
Li also said that the company remained heavily indebted but still needed to invest a large amount of money to build new towers for the Chinese government’s planned 5G mobile network, which is expected to be completed by 2020.
Although China Tower’s management has said the company would try to lower costs by sharing electric power companies’ transmission towers, Li estimated that more than 60 billion yuan (US$8.8 billion) would still be needed just to build 20 per cent of the new towers for the network.