IPOs: New Listing Resumption Nears with CICC, China Re HK Hearings

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Bottom line: New Hong Kong IPOs by CICC and China Re are likely to move ahead and receive solid but not extremely strong demand, though a resumption of new listings in China might not occur until early next year.

New listings set to resume in HK

New signs are emerging of an upcoming resumption for China company IPOs, which have come to a standstill these last few months due to huge stock market volatility. The latest signs of new life are coming from 2 major financial services firms, with investment bank CICC and insurance giant China Re reportedly set to meet securities officials in Hong Kong this week. Both companies filed for Hong Kong listings earlier in the summer, but later went quiet as investor appetite for new shares was quashed by huge volatility on Chinese and Hong Kong stock markets.

This latest activity comes just a week after we saw similar signs of life in both Hong Kong and China. One of those saw outdoor advertising specialist Focus Media take steps for a backdoor listing in Shenzhen, while the other saw snack food giant Liwayway also take initial steps for a Hong Kong listing in the next 6 months. The activity led me to call on China’s securities regulator to quickly lift its current temporary ban on new IPOs as soon as the current market volatility subsides. (previous post)

Of course Hong Kong and other major developed markets have no such process that allows the regulator to halt new IPOs, and simply let investor demand dictate when new offerings will occur. CICC has been planning its offering for quite a while, but was delayed by recent turmoil in the company’s top management. I’m less familiar with China Reinsurance’s IPO bid, which appears to be a more recent effort.

CICC was the first among this pair to take concrete steps towards an IPO, applying in July for an offering to raise up to $1 billion. China Re followed a few weeks later in early August, applying for its own offering to raise up to $2 billion. Previous reports had said both offerings were set to take place in the fall, so the latest timeline doesn’t appear to be majorly affected by the market turmoil of the last few months.

According to the latest reports, both CICC and China Re have schedule separate hearings with the Hong Kong securities regulator on Thursday of this week. (Chinese article) The reports say that if markets remain relatively stable and both companies get the final green light, each plans to begin marketing its offering in early October after China’s national day holiday at the start of the month.

Roller Coaster Ride

China’s stock markets have been on a roller coaster ride that saw the main Shanghai index more than double in the space of just 8 months, only to lose 40 percent of its value since early June this year. That volatility continued this week, with the index losing 6 percent in the first 2 days of the week, only to recoup most of that on Wednesday. Hong Kong’s main index has been similarly volatile, losing more than 20 percent of its value since late May.

While it’s encouraging to see a resumption in IPO activity after the recent pause, company fundamentals will ultimately dictate the reception for these 2 offerings. CICC was a hugely attractive company at one time due to its close government ties, which made its name a regular fixture on nearly all offshore IPOs for big state-run companies. But lately its star has faded sharply, and the company has been plagued by management turmoil.

China Re looks similarly problematic, with profit growth slowing to just 15 percent in the first quarter of this year from about 60 percent for all of 2014. The company could see even more profit erosion in the current volatile climate due to falling value of its investments. But at the end of the day, I do expect that both of these listings will move forward, and both companies’ state-run backgrounds should help them receive relatively strong support from Chinese institutional investors with close government ties.

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