The best debut of a Hong Kong initial public offering since 2009 may not be enough to spur a recovery in a market where investors have lost money on more than half the sales this year.
Sun Art Retail Group Ltd., China’s largest hypermarket operator, surged 41 percent yesterday in the biggest first-day gain for an IPO of at least $500 million since cement maker BBMG Corp. rose 56 percent in July 2009, data compiled by Bloomberg show. Only 20 of the 49 companies that have gone public in Hong Kong this year are trading above their offer price.
Sun Art “is a good reflection of the dichotomy we are seeing in the market right now: some deals have faltered, while others have done very well,” said Will Li, head of equity capital markets for China at Deutsche Bank AG in Hong Kong. The German bank wasn’t among Sun Art’s underwriters. “Investors do have cash on hand but are being more selective.”
At least six companies have canceled or delayed Hong Kong IPOs in the past three months, as demand wavers amid concern China’s efforts to contain inflation will curb growth. Shanghai- based Sun Art, which raised $1.2 billion, tapped investor optimism that consumer spending will withstand possible interest rate increases better than other areas of the economy as household incomes rise.
Sun Art, backed by France’s Groupe Auchan SA, plans to use proceeds from the IPO to expand in smaller Chinese cities where real estate prices are lower than in Shanghai and Beijing, it said this month. The company has 197 hypermarkets under the “Auchan” and the Ruentex Group’s “RT-Mart” brands in the world’s second-largest economy, and plans to open 48 stores in China this year, according to Executive Director Peter Huang.
The company’s 12 percent market share among hypermarket operators in China tops that of Wal-Mart Stores Inc. (WMT), which has 11.2 percent, according to Euromonitor.
Sun Art’s IPO valued the company at 31.4 times 2010 profit, while Hong Kong-listed Wumart Stores Inc., a Chinese supermarket operator, has a multiple of 37.3 times, according to data compiled by Bloomberg. Wal-Mart trades in New York at 12.8 times 2010 earnings, Bloomberg data show.
The CSI 300 Consumer Staples Index of 23 companies is the best performer among 10 industry groups on China’s CSI 300 Index (SHSZ300) this year with a 6.7 percent gain. The CSI 300 as a whole has slipped 4.1 percent since Dec. 31 as of yesterday’s close.
“Investors are confident about the outlook for consumer- related stocks as the sector will be less affected by policy tightening in China,” said Michiya Tomita, who helps oversee about $65 billion for Mitsubishi UFJ Asset Management Co. in Hong Kong. The broader appetite hasn’t returned given “ongoing concerns about the U.S. economy and the European debt crisis.”
Top of Range
Citigroup Inc., HSBC Holdings Plc and UBS AG managed Sun Art’s offering as global coordinators, while BNP Paribas SA, China International Capital Corp., Goldman Sachs Group Inc. and Morgan Stanley were joint bookrunners.
IPOs in Hong Kong have raised $15.3 billion this year, about a quarter of 2010’s record $58 billion tally, Bloomberg data show. Last year’s tally was bolstered by the sales of AIA Group Ltd. (1299) and Agricultural Bank of China Ltd., two of the three biggest IPOs in Hong Kong’s history. In the U.S., companies and their owners have raised $26.7 billion so far in 2011, compared with $37.8 billion for all of last year.
Sun Art was one of just two companies this year to price a sale of at least $1 billion at the top end of a range marketed to investors. The other was MGM China Holdings Ltd., a casino operator in Macau, where revenue is surging as visitors from China flock to gambling tables.
At the same time, China Everbright Bank Co. has struggled to attract buyers for a share sale that may raise about $6 billion, amid concerns that loans to Chinese local governments may turn sour.
Everbright Bank, which in June delayed the offering, is seeking more so-called cornerstone investors before proceeding with the deal, people with knowledge of the matter said last week. Cornerstone investors are guaranteed shares in an IPO in return for a pledge not to sell the stock for a fixed time period.
Resourcehouse Ltd. and Hosa International Ltd. were among companies that scrapped Hong Kong IPOs in May and June as investors shied away from new equity. New China Life Insurance Co. and China Guangfa Bank Co. are among companies planning multibillion-dollar IPOs in Hong Kong as early as this year, according to people with knowledge of the transactions.
“I don’t think market sentiment for IPOs in Hong Kong has improved,” said Danny Yan, a Hong Kong-based fund manager at Haitong International Asset Management, which oversees $600 million. “Other companies may find it difficult to raise funds given the tight liquidity in the market.”
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