Busiest 4Q on record for Hong Kong listings

Those of us who have an interest in Hong Kong IPOs – be it the investors who buy the deals, the bankers that bring them to market or the reporters who write about them – have got used to a pick-up in activity in the fourth quarter.  

Several of the biggest new listings in each of the past few years have taken place in the final three months and they have been joined by a flood of smaller companies as well. With the exception of last year, the October to December period has seen a greater number of new listings than any of the preceding three quarters since 2009 and typically, the deals keep coming right up until Christmas.

But even so, the past couple of months have felt very hectic with a new batch of listing hopefuls hitting the market pretty much every week. And earlier this week Dealogic confirmed that we are not imagining – it really has been an exceptionally busy quarter.

So far, there have been 44 new listings in Hong Kong since the beginning of October, which is the highest quarterly activity level on record and more than triple the 14 deals completed in the fourth quarter last year. One banker noted a few weeks ago that “2013 gives a new meaning to a back-ended year” and the data definitely supports that.

(New listings include both IPOs and first-time capital raisings in a new market by a company that is already listed elsewhere, such as China Everbright Bank.)
 
The total issuance volume doesn’t stand out in the same way, but at $11.3 billion it is more than what has been raised in each of the previous three quarters and up from $5.9 billion in the fourth quarter 2012.

Hong Kong is also the busiest stock exchange in the world this month with 17 new listings that have raised a combined $6.8 billion, the Dealogic data show. This makes it the most active month on record in terms of the number of deals and the highest monthly volume since May 2011 when there were $14.6 billion raised from new listings.

The report didn’t provide comparative data from other exchanges, but noted that globally $20.1 billion has been raised from 86 deals in December so far. This is the lowest monthly level since September, which saw $10.1 billion raised via 76 new listings and means that Hong Kong accounts for one-third of the money that has gone into new listings this month.

By comparison, Hong Kong accounts for just 12% of the global new listing volume for 2013 as a whole, which again confirms that December is definitely busy. Year-to-date Hong Kong has seen 89 new listings that have raised a combined $19.7 billion, which is up 74% from the same period last year in terms of volumes and the highest number of new listings year-to-date since 2010 which saw 93 new listings.

The December volume has been pushed up by China Cinda Asset Management’s $2.46 billion IPO and the $3 billion H-share offering by China Everbright Bank. But as noted, there have been another 15 new listings priced aside from these two since the beginning of December.

The flood of IPOs is coinciding with a renewed appetite for China and a shift of investor focus from Southeast Asia to North Asia that began in the summer. Global investors as a group are still well underweight Chinese stocks and are looking for ways to increase their exposure, bankers say.

But investors aren’t buying just anything and several deals have had to rely on Chinese demand to get them across the line. Some of the deals have also only launched once they were already fully covered, reducing the importance of the actual bookbuilding.

Among the most noteworthy new listings in the past month aside from the two big ones are Kerry Logistics Networks and funeral services provider Fu Shou Yuan International, which are both due to start trading today. While they were relatively small (Kerry Logistics raised $284 million, Fu Shou Yuan $215 million), they both attracted massive demand from institutional investors with more than 200 accounts submitting orders for each deal.

According to a source, close to 50 investors – Chinese and international – reached out to the three bookrunners even before the research had been printed to say they wanted in on the Fu Shou Yuan IPO and the banks had to cap the orders at 10% of the total deal size to keep the order book from getting out of hand.

On top of that, the retail tranche was more than 670 times covered, which triggered a full claw-back that increased the retail portion of the deal to 50%. There was also a 21% cornerstone tranche, reducing the number of shares available for institutional investors even further. As a result, there is expected to be good support in the aftermarket as some investors try to top up their allocations.

The demand for these two deals differed markedly from the reception towards China Everbright Bank, which was mostly bought by Chinese entities, especially state-owned companies and high-net-worth individuals – the kind of money commonly referred to as “friends and family”.

According to sources, the $2.5 billion base deal was fully covered by cornerstones and anchor investors at the bottom of the range at launch, but the Beijing-based bank also drummed up enough additional demand to exercise the 15% upsize option in full and increase the total deal size to $3 billion. The price was fixed below the mid-point of the range, but off the bottom.

Also due to start trading today is China Conch Venture Holdings, a building materials and energy preservation holding company that raised $463 million, and Consun Pharmaceutical Group, which raised $127 million. They will be followed on Friday by China Everbright Bank, Fuguiniao and Logan Property. Fuguiniao, a manufacturer and retailer of footwear and business casual menswear, raised $152 million ahead of the trading debut, while residential housing developer Logan Property raised $203 million.

Meanwhile, the final IPO of size to hit the Hong Kong market this year is likely to be ArtGo Mining Holdings, which started bookbuilding on Monday this week and is due to close the order books today. The company, which is a leading producer and distributor of marble in China, is seeking to raise between $104 million and $130 million ahead of the listing, which is scheduled for December 30.

ArtGo has lined up one cornerstone investor, VMS Investment Group, which is taking up $20 million worth of shares. It is being brought to market by Bank of America Merrill Lynch and Haitong Securities.