NetEase’s US$3 billion Hong Kong secondary listing looks like a done deal amid strong demand from investors
- NetEase has covered the book on its Hong Kong secondary listing and will close its international offer on June 4 at 4pm in all regions: sources
- JD.com and NetEase seek to raise up to US$7 billion in Hong Kong: sources
Chinese gaming giant NetEase has already amassed enough pledges from investors to cover its secondary listing in Hong Kong and could close the share offer on Thursday, according to people familiar with the matter. Investors’ take-up of the sale bodes well for e-commerce giant JD.com as it prepares to launch its offering on Monday.
NetEase and JD.com are racing to complete their secondary listings this month amid strong demand among investors for technology listings and before the US stance on Chinese companies trading on its markets hardens further.
US President Donald Trump is dialling up anti-China rhetoric ahead of seeking a second term in November, pushing more Chinese technology firms to consider a secondary-listing closer to home. Hong Kong’s exchange is putting on a full-court press to attract them.
“US-listed Chinese companies are concerned that Washington would place even more scrutiny on them if President Trump successfully wins a second term,” said Alvin Cheung, associate director at Prudential Brokerage based in Hong Kong.
JD.com is planning to raise between 4 per cent to 5 per cent of its market capitalisation ahead of a secondary listing on Hong Kong’s main board slated for June 18, according to a separate source. Based on its US market cap, that works out to about US$3.2 billion to US$4 billion.
NetEase is looking to raise US$2.6 billion, which could rise to US$3 billion if an overallotment option is exercised, according to a deal terms sheet. The deal is almost entirely aimed at international investors with just 3 per cent reserved for a Hong Kong public offer. Barring any last-minute hiccups, NetEase will close the books on its international offer at 4pm in all regions and on Friday for the Hong Kong public offer. It will price at 10am Hong Kong time the same day, the sources said.
For the first five months of this year, companies raised US$3.37 billion on the Hong Kong stock exchange from 52 IPOs, compared to US$11.83 billion from 60 IPOs on the Shanghai Stock Exchange, data from Refinitiv shows. If JD.com and NetEase successfully complete their offerings, it would help Hong Kong narrow its US$8.46 billion deficit with Shanghai as of end May.
Hong Kong’s winning streak could extend into the second half of the year as other US-listed Chinese companies are also mulling secondary listings in the city, including internet and artificial intelligence giant Baidu as well as catering group Yum China.
Hong Kong was the world’s top IPO exchange last year, but dropped to fifth place in the first quarter.
JD.com’s Hong Kong offering comes as its Nasdaq-listed American depositary shares hit a record high of US$55.53 on May 18, after listing in the US in 2014. The stock has risen 55 per cent year-to-date. The pricing of its stock in the Hong Kong secondary listing will be set in reference to its US shares.
NetEase will set the price for its international tranche with reference to the price of its ADRs, which closed on June 2 at US$408.65 each. It has set the maximum offer price for its Hong Kong public offer at HK$126 each. It is due to list on June 11.
Investors’ demand for IPOs was strong in May, particularly for the health care and technology-related sectors. One example is the over 1,100-time oversubscription attracted by Peijia Medical, a Suzhou, Jiangsu province-based medical device maker that made its debut on May 15.
In May, across the eight new listings on the main board, all, except interior design provider Raffles Interior, closed higher than their IPO prices on the first trading day. This was despite the Hang Seng dropping 6.8 per cent in May.
A failure to provide the information for three straight years would lead to the delisting of a company’s shares. The bill still needs to pass the House of Representatives before it can be signed into law by the US president.
Amid heightened US-China geopolitical tension, the line of Chinese firms seeking a listing in Hong Kong would grow longer, said Prudential’s Cheung.
“It would make sense for companies to complete their fundraising before the second half of the year, to avoid tapping a market that could be overcrowded by sizeable deals or issuers that are expected to attract strong demand,” said Cheung.
Additional reporting by Chad Bray