Hong Kong endures a lacklustre IPO year

The record of initial public offerings on the Hong Kong Stock Exchange in 2009 has been lacklustre in spite of the market raising more funds than in any other year through such issues. More than half of the 20 biggest deals this year, which raised a combined $26.4bn, are trading below their offer prices. The same companies have also lagged the market since listing. The proportion of flops has been unusually high this year, which bankers said might make investors more discriminating about what they buy in 2010. “Some investors got burned in some of the deals earlier in the year and they learnt a lesson,” said George Taylor, co-head of equity capital markets for Morgan Stanley in Asia Pacific. “Good companies will still get deals done in 2010 ... but the marginal company is going to find it harder to list.” China Zhongwang, an aluminium products maker which raised $1.3bn in May at HK$7 per share, was last trading at HK$5.66, a loss of almost 20 per cent. Over that period the Hang Seng index gained 23.5 per cent. By contrast, Sinopharm, China’s biggest pharmaceuticals distributor, has risen nearly 75 per cent since it raised $1.3bn in September, outpacing the index. Of the 20 largest IPOs 11 have underperformed the Hang Seng by an average of 15 percentage points, while the nine that outperformed the benchmark did so by an average of 36.7. Compared with previous years, when heavyweights like China Railway Construction came to raise capital in Hong Kong, most of this year’s crop were of lower quality, analysts said. A flood of money in to the Hong Kong market allowed investment bankers to price deals at higher valuations than usual, bankers said. “The bookrunners haven’t been strict enough on some of the deals,” Mr Taylor said. While many bankers predict 2010 will be another bumper year for Hong Kong IPOs, others are less optimistic. The Hong Kong stock market was likely to fall sharply in the coming months, cooling enthusiasm for new shares sales, said Andy Xie, an independent economist based in Shanghai. “Usually in Hong Kong, a big IPO year is followed by a lean year.” For the first time, Hong Kong raised more money through IPOs this year than all of the exchanges across the US. Analysts warn that if Hong Kong’s loose monetary policy starts to tighten, money that has flooded into its equity market could flow out just as fast.