Weak pricing for Citic Securities' Hong Kong share sale and a soft Shanghai debut for Great Wall Motor showed Greater China's IPO markets, while still open, are buckling in the face of economic uncertainty and hefty supply.
Initial public offerings globally have ground to a halt because of volatile markets and sovereign debt concerns, shutting off a key supply of funding for companies and revenue for banks.
In Hong Kong, the world's biggest IPO market for the last two years, some $4.5 billion worth of deals were pulled just last week by companies including Sany Heavy Industry and rival XCMG Construction Machinery Co Ltd.
"The situation is pretty poor right now," said Jasper Chan, corporate finance officer at Phillip Securities Ltd in Hong Kong. "The investment banks are hungry for any business, so they pushed these IPOs to the market. It's not a recovery," he added. "Demand is not there, absolutely."
Demand is likely to be tested further with some $35 billion in new share sales expected in Hong Kong and Shanghai in coming months from financial services companies alone.
FURTHER TESTS LOOM
Citic Securities Co Ltd, China's largest publicly traded brokerage, priced its Hong Kong share sale at the bottom of a revised range, four sources with direct knowledge of the matter told Reuters on Wednesday. The company will now raise about $1.7 billion from the offering.
Shares of automaker Great Wall Motor, meanwhile, fell as much as 9.2 percent on their Shanghai debut, with an uninspiring outlook for the industry adding to the weak sentiment.
Two other big deals are expected to progress later on Wednesday.
Sinohydro Group, China's largest builder of dams, is set to price its $2.3 billion Shanghai IPO, while China Communications Construction is widely expected to get approval from the regulator for its $3.1 billion deal.
Among other offerings slated before the end of the year are share sales from Haitong Securities, insurer New China Life and China Guangfa Bank.
The fact that Chinese companies are still considering public offerings in such uncertain times reflects their need to raise cash, China's relatively strong economic growth outlook and the country's time-consuming and opaque listing approval process.
Unlike many other jurisdictions, companies seeking to list in mainland China often wait years for approval, then must proceed within six months.
In many cases, companies are cutting the size of their offerings to generate interest.
Earlier this week for example, Sinohydro cut the size of its Shanghai IPO by about 14 percent. China's biggest builder of dams will only sell 3 billion shares in the IPO, compared with 3.5 billion shares originally planned.
Despite the cut, the Sinohydro IPO will still be the largest IPO so far this year in mainland China. Companies have so far raised $32.3 billion from first-time share sales, down 42 percent from a year earlier, Thomson Reuters data showed.
"The capital market is under immense pressure. There is not enough demand," Sinohydro's chairman, Fan Jixiang, told investors in an online roadshow on Monday. "We must take into consideration liquidity conditions in the market as well as the actual value of the company, so we proactively cut the size of the issue."
BIG DEAL
Even with the lower pricing, Citic Securities' deal will be the biggest stock offering in Hong Kong since the $2.5 billion initial public offering by luxury goods maker Prada in June.
Citic Securities had enough commitments from cornerstone and anchor investors including Temasek Holdings Pte Ltd, U.S. asset manager Waddell & Reed and hedge fund Och-Ziff Capital Management to fully cover its deal, sources said previously, easing concerns it could be derailed because of growing market volatility.
Hong Kong's benchmark Hang Seng index has plunged about 13 percent in September alone and fell to a 26-month low on Monday, making it harder for companies to tap risk-averse investors and demand top valuations when selling stock.
Great Wall, China's top manufacturer of sport utility vehicles and pick-up trucks, raised 3.96 billion yuan ($619 million) from its Shanghai offering. Its shares closed down 8.9 percent while the benchmark Shanghai Composite Index reversed earlier gains to fall 1 percent to its lowest in 15 months.
"Many new listings had traded below their IPO prices recently. There will be more to come as this has become a norm now," said Zhang Yanbing, an analyst at Zheshang Securities in Shanghai.
"Companies need to adjust their plans to reflect market realities or they will have a hard time selling their shares."
read more: Olympus Wealth Management
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