Hong Kong’s first biotech dual listing runs headlong into a case of bad timing as market slumps
Market observers say the Nasdaq-listed cancer drug maker, which is seeking a dual listing in Hong Kong, has succeeded in selling its IPO by a narrow margin
BeiGene, the first Nasdaq-listed pharmaceutical firm to seek a dual listing in Hong Kong, is being buffeted by headwinds that combined a stock market slump with rising cost of money, a vaccine scandal and a trade war between the world’s two biggest economies.
Retail investors are showing little interest in the Hong Kong stock offer by the eight-year-old company. As of Thursday morning, five major stockbrokers active in margin financing showed their combined margin lending for investors in the IPO stood at only HK$250 million.
Brokers estimate the retail tranche of the IPO may end up only just sold. Normally if the public offer is undersubscribed, bookrunners will cover it with the international placement tranche.
The IPO started on Monday aimed at selling 65 million new ordinary shares priced between HK$94.4 to HK$111.6 each, allowing the company to potentially raise between US$908 million and US$1.07 billion.
BeiGene has set the price for the offered shares at HK$108, higher than HK$103 – the midpoint of the indicative range, according to a statement on Thursday.
Singapore’s sovereign fund manager GIC, Beijing and Hong Kong-based private equity investor Hillhouse Capital Group, Hong Kong-based health care focused investment firm Ally Bridge Group, and New York-based investment firm Baker Bros advisers are the deal’s cornerstone investors, a source close to the deal said. They earlier agreed to buy close to a third of the shares on offer.
“First of all, the recent fake vaccine incident in China has dampened the whole industry, so it’s not a good time to invest in related biotech stocks,” said Joseph Tong Tang, chairman of Morton Securities.
“Secondly, the market sentiment is really bad. Tencent has finally broken through the key support level of HK$370. So overall it’s more bad timing rather than the biotech sector itself,” Tong said.
The Hang Seng Index fell 2.3 per cent on Thursday to close at 27,683.05 during the lunch break. The benchmark index has shed 10 per cent over the last three months.
The market’s sharp fall has dampened retail investors’ enthusiasm for IPOs.
In July, the average IPO retail subscription in Hong Kong was 29 times the total size on offer, the lowest since January 2016, according to data compiled by Bloomberg. This was down from 1,191 times in April, with the ratio falling to 301 in May and to 154 in June.
“The timing for any IPO these days is wrong as the market mood is bad,” said Cheung Tin Sang, a veteran broker at Luk Fook Securities (HK).
So far, eight biotech firms have submitted applications under reforms introduced by bourse operator Hong Kong Exchanges and Clearing (HKEX) in April. The biggest listing reform in 25 years was aimed at attracting giant technology firms with dual-class shareholding structures – shares that carry different voting rights – and biotechnology firms that are yet to generate revenue.
BeiGene is only the second to launch an IPO under the new regime. Its shares will start trading on August 8. BeiGene listed on the Nasdaq in 2016 but was keen on a dual listing in Hong Kong to improve its exposure in Asia while being close to the mainland market.
The company’s Nasdaq shares closed 4.2 per cent lower on Wednesday at US$181.74.
Tong however believes the lukewarm response from retail investors does not mean HKEX’s reforms have failed.
“The retail investors are more short-term market driven. The institutional side will be longer term and judge it on company fundamental values,” Tong said.
Additional reporting by Eric Ng