Another Hong Kong IPO bites the dust

Xing Yuan Power pulls its $91 million to $121 million IPO as investors shun small, illiquid names — setting a poor precedent for four other listing candidates due to price this week.
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A lonely broker at HKEx, where Xing Yuan Power failed to attract interest in its IPO (AFP)
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<div style="text-align: left;"> A lonely broker at HKEx, where Xing Yuan Power failed to attract interest in its IPO (AFP) </div>

The Hong Kong stockmarket closed marginally higher yesterday, making it the first time this month that it managed to post gains for two sessions in a row, but that wasn’t enough to save the initial public offering of Xing Yuan Power Holdings, a Chinese manufacturer of mid-range diesel generator cores for use in permanently installed and mobile power systems. The company, which was the first among five listing hopefuls of size due to price in Hong Kong this week, pulled its offering yesterday on the final day of bookbuilding, according to sources.

The reason, they said, was the challenging market environment, which makes it particularly difficult to convince investors to buy smaller offerings that are likely to be quite illiquid in the secondary market. Xing Yuan Power was seeking to raise between HK$707.2 million and HK$941.2 million ($91 million to $121 million) with the help of UBS.

Large companies, like MGM China, Huaneng Renewables Corp and Samsonite, managed to attract enough institutional interest to complete their IPOs, but all fell once they started trading. Part of the reason may be that the declining equity markets are forcing investors to sell something and since these recently acquired stocks are still easy to get out of, they may be high on the list. But it is also a sign that there isn’t much long-term commitment in the market at the moment.

Hong Kong’s benchmark Hang Seng Index has fallen in 11 of the past 14 trading sessions and, while it did close higher yesterday, the performance wasn’t exactly convincing. In fact, after opening higher, the HSI was on a declining trend for most of the day, aside from a brief attempt to recover at the beginning of the afternoon session, and it finished up just 0.04% — leaving Wednesday’s 1.1% gains looking more like a minor pause in the downward trend than a turning point.

Indeed, the Dow Jones index fell 0.66% overnight after the Federal Reserve acknowledged at the end a two-day meeting that the US economy is growing more slowly than expected, but announced no new measures to boost the pace of recovery. This suggests Asian markets are in for another lacklustre session today.

Also, Bloomberg reported yesterday that Prada was changing hands below the issue price in grey market trading arranged by Jefferies Group, suggesting that this stock too may come under pressure in its official debut on Friday. The report said that shares in Prada, which raised $2.1 billion in Hong Kong’s largest IPO year-to-date, had fallen as much as 2.5% to HK$38.50 from its IPO price of HK$39.50.

This would be another disappointment for investors who have lost a lot of money betting on new Hong Kong listings this year. When Prada priced last Friday, 13 of this year’s 15 IPOs that have raised more than $100 million, were still trading below the issue price. Among this month’s major debuts, Huaneng Renewables recovered yesterday to finish at its IPO price after trading as much as 5.6% lower at one point. Samsonite is currently down 3.4%, while MGM China has lost 13.7%.

So, it is perhaps not too surprising that investors are turning away from little-known companies like Xing Yuan Power. And it is far from the only listing candidate feeling the pinch. Hosa International, a manufacturer of indoor sportswear that is aiming to raise up to $211 million, and China Outfitters, a designer of casual menswear that is looking to raise up to $300 million, are also struggling to capture investors’ attention.

One source said Hosa was fully covered yesterday, but added that deal was still looking shaky. The company, which is being brought to market by Bank of America Merrill Lynch, was due to fix the final price this morning.

China Outfitters is scheduled to price its UBS-led offering at the end of US trading today.

Also due to close this week is Tibet 5100 Water Resources Holdings, a producer of bottled mineral water that is seeking to raise up to $207 million, and Newton Resources, an iron ore mining company, which is hoping to raise as much as $302 million. Tibet 5100 is being brought to market by CCB International, Citic Securities, ICBC International, J.P. Morgan and Oriental Patron, while Newton is relying on Bocom International, Citi, Macquarie and VMS to get it across the line. Newton tried to list in Hong Kong just over 12 months ago under the name of China Tian Yuan Mining but ran into corporate governance problems and has since been taken over by the New World group.

As noted earlier, it may be easier for larger deals to attract attention and sources say there is already a lot of interest for Sun Art Retail Group, which started investor education on Monday this week. The company, which operates hypermarkets in China under the two brands RT-Mart and Auchan, is expected to raise about $1 billion and has mandated Citi, HSBC and UBS to help it do so.

Another company that is expected to find buyers, if only because of its size, is China Everbright Bank. The lender, which is already listed in Shanghai, could raise more than $5 billion from its Hong Kong listing. Under the current timetable it is due to launch its institutional roadshow at the beginning of next week. China International Capital Corp, Morgan Stanley, UBS and China Everbright’s own investment banking arm are joint global coordinators for the offering. They are also joint bookrunners together with a whole slew of other banks, namely BNP Paribas, BOC International, HSBC, J.P. Morgan and Shenyin Wanguo Securities.

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