China Tourism Group Duty Free prices IPO at HK$158, raising US$2.1 billion in Hong Kong’s biggest deal this year

China Tourism Group Duty Free has priced its Hong Kong initial public offering at HK$158 per share, raising about US$2.1 billion (HK$16.2 billion) of proceeds in the city’s biggest IPO this year, according to a person familiar with the transaction.

The final offer price is above the midpoint of the HK$143.50-HK$165.50 range the retailer marketed to investors. It will issue 102.8 million shares to investors, and trading is slated to begin on August 25 under the stock code “1880”. There is an option to sell a further 15.4 million shares if there is a strong demand.

The final offer price works out at roughly a 28 per cent discount to its Shanghai-listed shares, which clossed at 188.62 yuan on Thursday. The stock has dropped 14 per cent this year amid a flare-up in Covid-19 cases on China’s southernmost island Hainan, where the company has bet on domestic tourism.

The IPO by the world’s largest travel retailer by sales would still rank as Hong Kong’s biggest deal this year, surpassing the US$1.7 billion raised by Tianqi Lithium in July.

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A dearth of sizeable IPOs this year has weighed on Hong Kong Exchanges & Clearing, with its first-half net profit tumbling by 27 per cent, its weakest interim report since 2017. Sizeable deals such as China Tourism Group Duty Free could help Hong Kong recover some ground lost to the Shanghai Stock Exchange.

Shanghai’s tech board, known as the Star Market, was the world’s top IPO venue raising US$13.4 billion from 51 deals in the first six months this year, Refinitiv data shows. Hong Kong’s 22 IPOs, which raised just US$2.3 billion, is the lowest since the corresponding period in 2003.

Hong Kong is also facing keen competition from other European exchanges, such as SIX Swiss Exchange, which has this year attracted a slew of mainland listed companies to raise funds via listing as global depositary receipts.

China Tourism Group Duty Free’s shares are not fungible to its yuan-denominated stock due to China’s capital controls. It is often common for A shares issued by the same company to trade at a premium to the Hong Kong H share counterpart due in part to different investor perceptions of the company’s outlook across the two markets, analysts say.

However, the company’s challenges are not limited to a drop in cross-border passenger traffic and international flight arrivals due to China’s strict pandemic control policies.

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Over half of China’s 2,810 asymptomatic Covid carriers reported on Thursday were in Hainan province. Meanwhile, China Tourism Group Duty Free said in its prospectus that its offshore stores dropped 7.7 per cent year-on-year in the first quarter due to temporary closures. The company has almost 100 per cent share of the offshore duty-free retail market in Hainan and runs what it claims to be the world’s largest travel-cum-retail complex in the city of Sanya.

“This will be a short-term impact,” Chang Zhujun, deputy general manager, said at a briefing last week. The company’s online business would counter the impact and it was making preparations to reopen its stores once curbs are removed, he added.

China Tourism Group Duty Free will use the IPO proceeds to expand new stores at airports, cross-border bus stations, seaports and railway stations. CICC and UBS are the joint sponsors of the deal.