China Cinda Asset Management Co., leading the nation’s four state-owned bad-loan managers to go public, had the biggest debut gain among large Asia-Pacific new stocks in more than two years after completing the region’s second-biggest initial public offering in 2013.
Shares of the Beijing-based company closed at HK$4.50 in Hong Kong, 26 percent above the HK$3.58 IPO price. The increase was the biggest first-day gain after an IPO of at least $1 billion in the region since Chinese hypermarket operator Sun Art Retail Group Ltd.’s July 2011 debut, according to data compiled by Bloomberg.
“You had a number of good investors signed up in advance, people that really understood distressed debt,” said Andrew Sullivan, a Hong Kong-based director of sales trading at Kim Eng Securities. “That’s what gave a lot investors confidence going in it. Now it has opened and opened successfully, you will have a lot of people, who sort of gave it a cursory glance and then said no, taking another look at it.”
Cinda, created in 1999 to buy bad debts from state-owned banks on the verge of insolvency, is raising money to finance new purchases. It is trying to profit from a new round of non-performing loans following a $6.5 trillion lending spree since the end of 2008 as the government combated an economic slowdown.
Cinda sold 5.3 billion shares, or a 15 percent stake, to raise $2.5 billion. Institutions subscribed “several times” the amount of stock set aside for them at the high end of a HK$3 to HK$3.58 offering price range in the IPO, two people with knowledge of the matter said on Dec. 4. Hong Kong individuals ordered 161 times of the number of shares initially earmarked for them, according to a Cinda statement on Dec. 11.
Being the first China bad loan manager completing an IPO in Hong Kong, Cinda gained first-mover advantage, attracting investors who want to tap opportunities in distressed debt in China that individuals and small companies have found hard to access, Sullivan said.
Institutions including hedge funds Och-Ziff Capital Management Group, Farallon Capital Management LLC, Oaktree Capital Group LLC and Norwegian central bank Norges Bank bought a combined $1.1 billion worth of Cinda IPO shares, agreeing not to sell the holdings for six months, according to share sale documents.
The company plans to use about 60 percent of the proceeds to enhance distressed asset management, which remains its core business after generating at least 30 percent in pretax returns on average equity since 2010, according to its prospectus.
Non-performing loans at Chinese banks increased for an eighth consecutive quarter in the three months ended Sept. 30 to 563.6 billion yuan ($93 billion), extending the longest streak in at least nine years. They account for just 0.97 percent of the nation’s outstanding loans, according to the banking regulator.
“With the economy in a down-cycle, Cinda should be able to selectively acquire non-performing assets at a discount due to the scarcity of capital at asset management companies relative to banks,” Nomura Holdings Inc. analysts led by Lucy Feng wrote in a research note dated today.
Banks will have a rising need to move non-performing loans off their balance sheets, a key growth driver for Cinda, according to the note. Banks have an incentive to keep their non-performing loan ratios at certain levels through the credit cycle and free up capital to finance growth, it said.
Nomura analysts gave the stock a buy recommendation, with a price target of HK$5.10, adding that they prefer asset-management companies over brokers and banks as Cinda should benefit from “more buoyant asset prices” once the economy improves.
Cinda, which already has a 36 percent domestic market share acquiring distressed assets, will be in an even stronger capital position to compete after the IPO, according to Nomura’s note.
The company plans to use about 20 percent of the IPO proceeds in its financial investment and asset management business and the remainder to recapitalize its financial subsidiaries that now cover securities, trust, leasing and insurance, according to the prospectus.
Cinda is benefiting from a resurgent IPO market in Asia. In the Asia-Pacific region this year, its IPO was the largest after Suntory Beverages & Food Ltd.’s June share sale which raised nearly $4 billion, according to data compiled by Bloomberg.
To contact the reporter on this story: Bei Hu in Hong Kong at firstname.lastname@example.org
To contact the editor responsible for this story: Andreea Papuc at email@example.com