IPOs: Guotai Zooms, Legend Lumbers, Toncheng Eyes China
Bottom line: A probable correction in China’s stock markets could cause Tongcheng to abandon its decision to list at home, and lead to a weak debut for Legend Holdings’ Hong Kong IPO.
When the history books are written, the latest batch of IPO news could well mark the end of a brief but unusually buoyant period that has seen many Chinese companies eschew overseas stock markets for listings at home. Leading off the news was a sizzling performance by securities brokerage Guotai Junan (Shanghai: 601211) on its trading debut in Shanghai, as it become China’s biggest domestic IPO since 2010.
Another piece of IPO news also cast a spotlight on the hot Chinese stock markets, as online travel site Tongcheng said it was eying a listing at home in the next year, in a snub to New York where most of its peers are traded. Last but not least, the lukewarm reception for Chinese listings abroad was reinforced by Legend Holdings, parent of PC giant Lenovo (HKEx: 992), which failed to attract any major international investors as it priced its Hong Kong IPO.
Astute readers will note that I started out by saying this latest batch of news could mark the end of a chapter, and market watchers will know why that’s the case. Many believe that China’s stock markets now stand on the cusp of a big correction, following a massive sell-off that saw the Shanghai index plunge 7.4 percent on Friday. Including last week’s losses, the index has now shed nearly 20 percent from its peak in early June, and many believe the sell-off has just begun after a rally that saw the markets more than double over the last year.
Against that backdrop, Guotai Junan’s stellar IPO debut looks somewhat surprising on the surface, since it came on the same day that the broader market dropped 7.4 percent. The company raised 30.1 billion yuan ($4.9 billion) in the offer, and then saw its shares jump by the maximum limit of 44 percent shortly after trading began. (English article; Chinese article)
Such jumps on trading debuts have become commonplace in the current market, and usually occur immediately after trading begins in the morning. That means that Guotai Junan’s shares most likely reached their limit and stopped trading shortly after the market opened, and thus weren’t being traded during the bloody sell-off later throughout the day.
Tongcheng Gives China Thumbs-Up
The euphoria surrounding China’s recent bull market has driven a flood of New York-listed Chinese firms to launch privatization bids, as they believe they can get higher valuations by re-listing at home. That trend has now seen Tongcheng, a company that just a year ago almost certainly would have targeted New York for an IPO, say it now is aiming to list on one of China’s domestic stock markets within a year. (Chinese article)
Tongcheng discussed the plan in announcing its latest funding round, which included investments by such big names as Wanda Group and Tencent (HKEx: 700). Its decision to list in China is almost certainly the result of the market’s recent rally, and I wouldn’t be surprised to see it change course and head for New York if a major correction sets in.
Finally there’s the Legend Holdings IPO, which has rapidly been running out of steam as it heads to market after years of preparation. According to the latest reports, the company has priced its IPO shares at HK$42.98 each, which will allow it to raise HK$14.63 billion ($1.9 billion). The price is near the top of its previously announced range, and the reports say the offering was largely oversubscribed.
While demand looks high on the surface, a more telling sign is the list of cornerstone investors, which is almost all Chinese and contains no major foreign names. That reflects the lack of major excitement around this diversified company whose assets run the range from PCs, to real estate and interest in 2 private equity funds. All that said, Legend’s own background is likely to be irrelevant when its shares begin trading, and its debut performance will be tightly tied to the latest trends in the Chinese stock market.
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