IPOs: Baozun Seesaws, Huatai Flies, eHi Cruises
Bottom line: The strong reception for Huaitai Securities’ Hong Kong IPO reflects growing international investor appetite for Chinese stocks, which could help to lift shares of New York-traded Chinese companies like newly listed Baozun and eHi.
A flurry of IPO news is reflecting the growing attraction of listing closer to home for Chinese firms, whose New York-traded shares have languished these days due to lack of familiarity by local investors. Two new US-based listings have performed reasonably well but not spectacularly, led by modest gains for newly listed shares of web design services firm Baozun (Nasdaq: BZUN) in their trading debut. At the same time, recently listed rental car company eHi (NYSE: EHIC) raised a modest amount of money in a secondary offering, again reflecting tepid investor interest in its story.
While those 2 listings got so-so receptions, the response was far stronger for Huatai Securities, China’s fourth largest brokerage, whose shares priced at the top of their range as Hong Kong investors scrambled to buy into the mainland’s ongoing stock market boom.
These 3 stories reflect a new reality that has seen a growing number of Chinese companies abandon their New York listings due to lack of interest from US investors. Most are hoping their stocks will get better receptions at home, with many eying re-listings on China’s domestic stock markets as their first choice. Hong Kong remains a strong second choice due to its location on China’s doorstep, which means that many investors there are more familiar with these Chinese names than stock traders in distant New York.
Let’s begin this IPO round-up with Baozun, which looked like an interesting investment proposition due to its unique position as a Chinese website designer for many leading global brands such as Nike (NYSE: NKE), and also its backing by e-commerce giant Alibaba (NYSE: BABA). Baozun’s IPO shares priced weakly, ultimately selling for $10 after it initially set a range of $12-$14, raising $110 million.
The stock traded as high as $11.22 and as low as $9.23 in its first day, before closing up around 10 percent at $11.08, giving Baozun a modest market value of $120 million. That’s certainly not a bad opening, but the final price is still below the company’s initially targeted range and isn’t as spectacular as the gains we’ve been seeing for newly listed shares in Hong Kong and China these days.
Next let’s look at eHi, which posted its own mixed debut when it listed its shares last November in IPO. (previous post) Since then the company’s stock has posted relatively strong gains, which perhaps gave it the confidence to make a secondary offering that raised about $134 million. (company announcement) eHi shares rallied 14 percent in the latest trading session, indicating investors were positive about the new share offering.
One reason for their enthusiasm was an investment in the secondary offering by leading online travel site Ctrip (Nasdaq: CTRP), which means that eHi’s car rental services may get preferential placement on Ctrip’s websites and mobile apps. That tie-up is one of just many recent ones for Ctrip, which announced its purchase of a major stake in rival travel services firm eLong (Nasdaq: LONG) the same day it that eHi announced this secondary placement. (previous post)
Finally let’s take a look at Huatai, whose share sale continues a trend that has seen strong investor interest in new offerings by just about any Chinese securities brokerage these days. Other brokerages that have made IPOs or issued new shares over the last 9 months include Orient Securities (Shanghai: 600598), Guosen Securities (Shenzhen: 002736) and sector giant Citic Securities (HKEx: 6030; Shanghai: 600030), just to name a few.
The latest reports say Huatai’s upcoming IPO shares have priced at HK$24.80 ($3.19) apiece, which is the very top of their range, for a massive offering expected to raise $4.5 billion. (English article) The offering was nearly 300 times oversubscribed, reflecting the huge demand for the stock as international investors look for ways to cash in on China’s recent stock market rally. I expect this stock will post strong gains when its shares make their trading debut, possibly rising as much as 20-30 percent on the wave of irrationally strong buying sentiment that has surrounded Chinese stocks since last fall.
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