China Tower opens with a whimper in Hong Kong debut as investors tire of stock offerings
China Tower, the US$6.9 billion stock sale that has been hogging headlines as the world’s largest initial public offering (IPO) of 2018, opened with a whimper in Hong Kong, extending the trend of lacklustre debuts as investors appear to have grown tired of blockbuster stock sales.
Shares of the Beijing-based company traded for the first time at HK$1.26 each, unchanged from their offer price, even as China Tower offered them at the bottom of a price range.
As many as HK$5.5 billion of shares changed hands, making China Tower the second-most heavily traded issue on the Hong Kong exchange, with the stock’s price swinging between HK$1.26 and HK$1.29 each.
“The IPO size is huge, and it came at a time when liquidity is not abundant in Hong Kong, so it would have been hard for the stock to see a big jump,” said Ronald Wan, chief executive for Partners Capital International. “The public’s enthusiasm for IPOs has also decreased.”
China Tower, which operates the telecommunications towers for the world’s biggest cellular phone networks, raised at least HK$54.3 billion (US$6.9 billion) in its IPO, making it the largest global offering since Postal Savings Bank of China raised US$7.6 billion in 2016.
“I’m happy that our offering has received a good response from global long-term investors, sovereign wealth funds, hedge funds, and Chinese financial institutions,” said the company’s Chairman Tong Jilu during the listing ceremony on Wednesday morning. “They recognised our business model of sharing other companies’ transmission towers.”
As a key part of China’s ambition to implement a 5G network as early as 2020 and lead a global race, China Tower plans to build more base stations in the country, Tong said on July 24.
But that has raised concerns among investors about China Tower’s cash flow, as the construction requires large amounts of capital investment by the heavily indebted company.
The company may share transmission towers with electricity distributors to keep its construction costs down, Tong said, and has signed contracts with State Grid Corp of China and China Southern Power Grid to do so.
“Investors also recognised our pricing model, which is cost-based and market-oriented,” Tong said.
China Tower was formed in 2014 through the merger of the transmission operations of China Mobile, China Unicom and China Telecom. The three mobile carriers together own more than 90 per cent of China Tower, and also contribute 99 per cent of its revenue.
“The three carriers share the same interests with us. China Tower wouldn’t exist without them. They have been protective and supportive of us since our birth,” Tong said. “I’m confident we can create long-term value for the three carriers and our investors in the long term.”
The value from China Tower’s IPO could increase by as much as 15 per cent to HK$64.45 billion if the over-allotment option known as greenshoe is exercised, which lets underwriters sell up to 15 per cent more shares than the company originally planned, depending on investor demand. Underwriters usually have 30 days to exercise the option after the offering.
Alibaba Group Holding, owner of this newspaper, still holds the global record with its US$25 billion New York IPO in 2014.
At US$6.9 billion, China Tower’s offering is the eighth-largest in Hong Kong’s history, according to data compiled by Dealogic.
Still, China Tower has already pared back its fundraising ambitions, as issuers and banks have become more cautious amid a weak market and lacklustre investor interest. Smartphone maker Xiaomi’s failure to manage expectations about its valuation and volatile post-debut performance also dampened their spirits.
China Tower is the second major company to price its IPO at the bottom of a targeted range in the recent past after Xiaomi.
Individual buyers only placed HK$4.6 billion worth of orders on China Tower, 20 per cent of what Xiaomi received in late June, and only 1 per cent of Ping An Good Doctor’s retail bids in April.
Unlike the previous new economy IPOs that were popular with retail investors, China Tower is a state-owned telecoms infrastructure firm with “simple business model” and “stable revenue,” said Frank Xu, a fund manager at Q Fund Management. “It may be more suitable for investors who like stable cash flows or dividends.”
The company also picked an awkward time to sell shares, amid the 16 per cent plunge in Hong Kong’s benchmark Hang Seng Index since January.
“The IPO sentiment has cooled off, as the stock market has fallen considerably,” said Edmond Hui, chief executive officer of Bright Smart Securities. “Investors would rather buy existing stocks rather than risking their money in IPOs.”
In July, Hong Kong’s average IPO retail subscription was 29 times, the lowest since January 2016, according to data compiled by Bloomberg.
It marks a sharp turnaround from earlier in the year. Retail investors overbought IPOs by an average of 1,191 times in April. The ratio fell to 301 in May and slipped further to 154 in June.
That signals trouble for other large listings in the pipeline.
Meituan-Dianping, the online services platform backed by Tencent, applied in June for a Hong Kong IPO, aiming for a valuation to double the US$30 billion achieved in an October funding round, according to people familiar with the matter.
China Tower plans to use 60 per cent of its IPO proceeds for capital expenditure, including building new towers and upgrading existing ones. Another 30 per cent will be used to repay bank loans, while 10 per cent is for working capital and general corporate purposes.
It has lined up US$1.42 billion from 10 cornerstone investors. Hillhouse Capital is the largest among them, having agreed to buy US$400 million worth of shares.
The others are OZ Management, Darsana, Invus, Sinomach, SAIC Motor, and the state-owned Assets Supervision and Administration Commission of Haidian District in Beijing, a district regulator of state-owned enterprises in the capital.
With additional reporting by Yujing Liu in Hong Kong