Poly Culture Group's shares jumped 23% on their first two days of trading as local retail investors rushed to buy a piece of China's largest art auction house.
China's answer to Sotheby's and Christie's listed on March 6, the first mainland auctioneer to list, and raised $331 million on February 28 ahead of the IPO, with shares priced at HK$33 a share, the top end of the range.
There were roughly 77.8 million shares on offer, representing 33% of the enlarged capital. Shares were initially offered at HK$28.20 and HK$33, with the final pricing putting the company's valuation at 17 times its 2014 P/E forecast.
Prior to the IPO, the retail portion was oversubscribed by 605 times, leading the company to exercise its greenshoe option and raise an additional $50 million.
Citic Securities International acted as sole sponsor, and CLSA as the sole bookrunner.
This demand continued post listing as investors - mainly retail but a decent amount of institutions as well - clamoured to buy the shares.
“I believe it's the best performing IPO [in Hong Kong] for a long time,” a banker close to the deal told FinanceAsia. “It's traded well and proved people's enthusiasm. It's a unique company and a play on the rising wealth in China.”
On Friday afternoon, roughly 83%, or 64 million shares, changed hands, he said. The stock surged 30% mid-morning to HK$42.60 before closing the day at HK$40.50.
“It's hard to know who's buying and selling in Hong Kong, but it appears to be well supported by institutional and retail demand on the buy side. And equally, there's been significant turnover of the stock. People are buying and selling,” said the banker close to the deal.
Poly Culture's revenue last year suggests the pent-up demand for art in China is substantial - its auction division recorded turnover of HK$989.1 million ($127.5 million) in its 2013 autumn auction, a 91% rise over the prior autumn, and the company is forecasting stronger numbers for this autumn.
Sotheby's and Christie's have been eyeing China's market for years, with Sotheby's in 2012 entering the mainland via a partnership, while Christie's independently set up operations. Both are prohibited from buying or selling ancient Chinese relics or antiquities however as the country seeks to protect cultural relics.
The number of mainland high-net-worth individuals is forecast to hit 840,000 in 2013, surpassing 700,000 in 2012, according to the China Private Wealth Report 2013, jointly published by Bain & Company and China Merchant's Bank.
As Chinese get wealthier - many will look to invest some of their money in valuable pieces of artwork.
But the country's art market is plagued with a lack of transparency, forgeries and payment defaults or delays, all of which can have an adverse affect on auctioneers such as Poly Culture.
This hasn't whet appetite in Hong Kong, where investors, for now, can't get enough. Poly Culture's performance stood out particularly as two other mainland companies failed to list last week, sources say, with mounting worries over the mainland's growing debt and the ongoing crisis in Ukraine dampening consumer sentiment.
Hanhua Financial, China's largest credit guarantor, initially sought to raise up to $367 million, with a greenshoe option taking the deal to $400 million.
Meanwhile, Shaanxi-based auto dealer Sunfonda Group aimed to raise $88 million with a Hong Kong listing in March.
CICC, China Galaxy International and Credit Suisse are joint bookrunners for Hanhua Financial, while JP Morgan and Standard Chartered Securities are handling Sunfonda.
But both companies late on Friday decided to delay the listings, citing sluggish demand.
“Poly Culture stands out as an amazing success in its own right when you compare to the difficulties [other companies face]," the banker close to the Poly Culture deal said. "They're all very different. But it shows investors are selective in what they'll participate in."