IPOs a mixed bag for HK, China

It is also a testament to investor concerns over China’s decision to tighten bank lending policies and a realization that global recovery may not come as quickly as some might have hoped.

The most recent nod to lukewarm IPO markets was International Mining Machinery’s decision to price its Hong Kong IPO at the bottom of the indicated range, or a total deal size of HK$2.54 billion ($327 million). The coal mining machinery maker, backed by private equity firm The Jordan Company, had initially planned to issue 520 million new shares at HK$4.88 – HK$6.28 ($0.63 - $0.81) per share, but in the end had to issue all shares at just HK$4.88 per share. The institutional tranche was downsized from 90% to 83%, increasing the retail tranche to 17%.

At the beginning of the month China First Heavy priced its Shanghai IPO below the top of the indicated range at a total deal amount of $1.67 billion, and the last week of January saw SouthGobi Energy Resources fall in its Hong Kong debut. The Mongolian coal producer dropped 16% on its first trading day, rallying slightly to close at 11% below its offering price.

Economists have been warning that while the Asian decoupling theory may be coming to fruition, China may require some tightening policies to quell inflation. Qu Hongbin, Chief Economist, China, at HSBC, said recently, “We do see an increasing risk of overheating in China… That requires more action in terms of policy tightening in the next few months.” As a result, Hong Kong will see a toning down of the pent-up appetite for IPOs the market saw coming into 2010.

According to AVCJ Research, private equity-backed IPOs of China-based companies raised $21.5 billion in 2009, a drastic upsurge from just $11.1 billion raised in 2008. Incidentally, only seven more IPOs were completed (50 in 2009 compared to 43 in 2008), showcasing the energy and positivity with which the market – and investors – were viewing the opportunity.

Any slowdown would have wide-reaching implications for private equity firms around the world, many of which are banking on a continuation of the 2009 trends and hoping for more. PricewaterhouseCoopers had estimated that the Hong Kong market alone would raise more than HK$300 billion ($38.6 billion) in new listings, but the current trend and forecast for China’s lending policy could change that view.

Likewise, although China lifted the halt on IPOs on the Shanghai market last summer, recent performance has not exactly been encouraging.

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• Topics
• Exits
• Greater China
• Industrials
• The Jordan Company