So far, investors have been reluctant to commit money to IPOs because their previous investments were still hovering below issue price. By now, four of the five Hong Kong IPOs that were completed in the first quarter have moved into positive territory, but with the exception of China Railway Construction it took them quite a long time to get there. Among the most recent listings, department store operator Maoye International Holdings dropped 1.9% on its first day on May 5 and 3.2% over the first two days combined. It then moved above the issue price for five sessions, only to slip below it again in the past three days. Artini, which started trading on Friday last week, fell by nearly 10% in its first day and after two more days it is now 14.4% below the IPO price.
Asia Cement, on the other hand, opened 61% higher at HK$7.99 and spent most of the morning session in a range between HK$7 and HK$7.30, or just over 40% above its IPO price of HK$4.95. And while there was some profit-taking in the afternoon, it wasnÆt particularly aggressive and allowed the stock to close at HK$6.83.
One source close to the deal says they would have been disappointed if the share price had gone down, but was ôsurprised that it went up as much as it didö.
According to Dealogic, Asia Cement is the best first-day performer among Hong Kong IPOs since Alibaba.com surged 192% in its debut in late October. The data exclude the offerings from New Media Group and Xingye Copper International, since their small deal sizes ($13 million and $38 million, respectively) made them a lot more prone to sharp gains or losses and therefore not quite comparable.
Asia Cement, which was brought to market by ABN AMRO and BNP Paribas, raised $238 million and priced its offering 5 HK cents above the bottom of the price range.
The company, and the sector it belongs to, benefited from several factors that contributed to the share price rise. Terrible as it is, the destruction caused by the earthquake in Sichuan is the most obvious, as it has created an instant demand for construction materials, including cement. Asia Cement has a plant in Yadong, only 70 kilometres away from the earthquakeÆs epicentre in Wenchuan, and will in the short term have problems delivering its goods in around the region due to the damaged infrastructure. But the plant itself was undamaged and was able to resume operations on Monday this week. Thus, in the medium term there is an enormous opportunity to supply the reconstruction effort in the region.
Other companies within the same sector have also been buoyed by the events in Sichuan and their gains created a positive backdrop for the newcomer. Sector leader Anhui Conch Cement has risen 19.4% since the earthquake on May 12, and China National Building Materials was up 24.6% before falling 8% yesterday.
But the disaster in Sichuan was not the only factor in play. ôThe placement went extremely well,ö says the source, with a group of long-only funds taking up a large portion of the book. Since many of the shares were held by funds intending to keep them, when it came to trading, there wasnÆt much stock available, thus helping to boost the price.
The retail book was also 4.6 times covered, which isnÆt anything special compared to the listings from last summer, but it is notable considering that several recent IPOs have failed to fill their retail portions.
So, could Asia CementÆs success spread to other IPOs in the pipeline? ôAs soon as there is one or two deals that do significantly well, this sparks retail investor interest,ö says the source. ôThe same applies to hedge funds û they are a little risk adverse at the moment and are looking for solid investments.ö
But if shares prices start to rise on the first day, hedge funds could start coming in to play, the source says, adding: ôI wouldnÆt be surprised if deals over the next couple of weeks do well.ö