China Re raises $2b from HK IPO

China’s largest reinsurer drew a strong response from investors for its jumbo deal, which should raise investor expectations for upcoming Hong Kong IPOs.

China Reinsurance, the country’s biggest reinsurer by number of written premiums, raised $2 billion from its Hong Kong initial public offering after pricing 5.77 billion shares at the top of the HK$2.25–HK$2.70 indicative price range on Friday, a source close to the transaction told FinanceAsia.

The largest deal following China’s stock market plunge over the summer will raise investor expectations for upcoming IPOs in Hong Kong because the reinsurer was sounding out a price around the mid-point before subscription ended on Friday, according to investors.

China Re was able to price at HK$2.70 with the institutional tranche multiple-times oversubscribed and the retail offering 94 times subscribed, the source said.

Under the clawback mechanism, the retail portion has been enlarged to 10% of the total deal size from 5%, while the instiutional tranche was downsized to 90% from 95%.

Cornerstone and anchor investors have taken up approximately 60% of the final book that consists of about 240 lines.

Market sentiment has been strong as the Hang Seng Index rose in six of the nine trading days since China Re started premarketing the deal on October 5. The index gained 5.5% during the period and has risen 12.2% since hitting its lowest point of the year on September 29.

Before China Re’s floatation, movie technology developer IMAX China and intimate wear manufacturer Regina Miracle were the only new listings after the summer break in July and August. The duo were unable to price anywhere close to the top of their respective price ranges, although both outperformed the benchmark Hang Seng Index in secondary trading post-IPO.

IMAX China had high hopes of raising as much as $276 million in its September offering but ended up with only $248 million after settling the offer price at the bottom of the HK$29.80–HK$34.50 range. Likewise, Regina Miracle also ended up with a less-than-expected $213 million with a final price of HK$5.60 against a range of HK$5.38–HK$6.38.

China Re's deal therefore sends a positive signal to the market that investors are still committed to new listings that have promising business and solid fundamentals. The company operates in a niche market with only a few global companies competing for business domestically and is therefore well-placed to benefit from China’s increasing urbanization and deeper insurance penetration.

Valuation-wise, China Re is also appealing as it will join as one of the cheapest insurance companies listed in Hong Kong. At HK$2.70, the reinsurer is valued at 1.3 times consensus estimated book value by the end of the year and 1.55 times historical price-to-book as of the end of June.

On a historical P/B basis, China Re will rank fifth among the seven listed insurers. Only People’s Insurance Company of China and China Taiping Insurance are valued more cheaply with their shares trading at 1.29 times and 1.46 times book value respectively.

The deal seemed to have processed smoothly although China Re hired a large underwriting team of 19 bookrunners. Last year, Chinese pork manufacturer WH Group appointed a record 28 bookrunners for an IPO that initially failed, in part because of communication issues between the big team.

Certainly, China Re’s success will increase expectations for other jumbo deals, including China Huarong Asset Management and CICC. The former is in the middle of a global roadshow until October 22, while the latter has already received Hong Kong stock exchange approval and is widely expected to hit the market before the end of the year.

CICC, HSBC and UBS are the joint sponsors of China Re’s IPO. The company is set to make its debut on October 26.

This article was amended with updated information on final book.

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