China's second-largest publicly traded brokerage delayed pricing its up to $1.7 billion Hong Kong listing, spooked by falling stock markets, underlining shaky confidence in new issues as other firms price low to get their share offerings away.
A year-end rush of up to $7.6 billion in Hong Kong and mainland China IPOs had been slated this week as companies seek to raise funds ahead of what some predict could be an even tougher year in 2012. "There's great uncertainty in the markets, like with the European sovereign debt ... Next year may be even worse," said Philip Mok, research analyst at Phillip Securities in Hong Kong.
With the outcome of a high-stakes European Union summit still unclear, investors pulled money out of Asian stock markets on Friday, sending Hong Kong's benchmark Hang Seng Index down 2.7 percent to its lowest this month in skittish, low-volume trading. The volatility prompted Haitong Securities Co Ltd and its underwriters to postpone final pricing, said a source with direct knowledge of the issue. A second source said pricing was delayed. Pricing is now expected on Monday.
Haitong had been due to price its offering "on or about" December 9, according to its prospectus, aiming to sell 1.229 billion new shares at between HK$9.38 and HK$10.58 each. With the Hang Seng down around 19 percent this year, making company valuations in the territory the cheapest in Asia-Pacific, companies that have pushed ahead with IPOs have been conservative in pricing them.
Earlier, Chow Tai Fook Jewellery Group, the world's largest jewellery retailer, priced its $2 billion IPO, the third-biggest Hong Kong offering this year, at the bottom end of expectations. Chow Tai Fook offered 1.05 billion new shares at HK$15 each, the bottom of an indicative range of HK$15-HK$21, two sources with direct knowledge of the deal told Reuters.
Patrick Yiu, a director at Cash Asset Management in Hong Kong, said many of this year's IPOs were now underwater from their offer price, limiting the appetite for further new issues. "Weak response from the market for the IPOs should make some of the IPOs try to delay pricing or listing," he said. "Market turnover is very thin. Some institutional investors are taking their money back to Europe. Volume isn't sufficient to support the rhythm of the IPO market."
On Thursday, New China Life Insurance Co Ltd, China's No 3 life insurer, raised about $1.9 billion in a dual Hong Kong and Shanghai IPO, while luxury car dealer Baoxin Auto Group Ltd tapped Hong Kong markets for $414 million. Both also priced their deals at the low end of expectations. Hong Kong-based Chow Tai Fook's IPO, among the most anticipated this year because of its size and brand recognition in Greater China, valued the company at about $19.2 billion, more than twice the size of US jeweller Tiffany & Co.
Chow Tai Fook priced the IPO at 15 times its forecast earnings for fiscal 2013, which starts in April, one source said. Tiffany trades on a forward P/E of around 18, according to Reuters data. The IPO came close to the $2.06 billion raised by Shanghai Pharmaceuticals in May, but was far behind the $2.5 billion raised by luxury fashion house Prada SpA a month later.
Listed and based in Shanghai, Haitong Securities would follow larger rival Citic Securities, which raised $1.7 billion in Hong Kong late in September. Founded in 1988 as Shanghai Haitong Securities Co, the firm has 210 branches in 113 cities in mainland China, with 13 more in Hong Kong and Macau and more than 4 million retail brokerage customers.
Chow Tai Fook's IPO had no commitments from so-called cornerstone investors, a source previously said, a sign that investors were unwilling to tie up their funds for an extended amount of time. Such investors back many Asian listings, committing to buy large, guaranteed stakes and agreeing to a lock-up period during which they will not sell their shares.
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