Published August 13, 2009

Share sale whets HK's appetite for IPOs

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(HONG KONG) Hong Kong's initial public offering market is bouncing back from the deepest financial crisis since the 1930s as the success of recent share sales brings companies back to the market.

BBMG Corp attracted about US$100 billion in demand, and leapt 56 per cent on its July 29 debut. Companies such as American International Group Inc's Asian life insurance unit, Chinese property developer Evergrande Real Estate Group Ltd and casino operator Wynn Resorts Ltd may follow in coming months.

'The key thing that BBMG showed us was the return of a huge amount of demand from retail investors, Hong Kong brokers, high-net-worth individuals and China-sourced money,' said Mark Williams, Hong Kong-based Asia joint head of equity capital markets at UBS AG, which co-arranged BBMG's sale. 'It's a sign of people's risk appetite returning.'

The demand is passing pricing power back to issuers from institutional buyers, allowing companies to sell shares at the top of marketing ranges. The final months of the year are set to be the city's busiest for IPOs in two years, Mr Williams said, a turnaround from the first half, which was the slowest since 2003.

The renewed demand for new issues follows a recovery in the secondary market, where government stimulus packages, easing economic concerns and better-than-expected earnings have lifted share prices. The city's benchmark Hang Seng Index jumped about 90 per cent since the one-year low on Oct 27, 2008.

Shares initially reserved for Hong Kong individuals were 775 times subscribed in BBMG's HK$6.8 billion (S$1.3 billion) July stock sale, BBMG said.

Three months earlier, institutional rather than retail investors dominated the order book for China Zhongwang Holdings Ltd's HK$9.8 billion IPO. Fund managers' greater sensitivity to valuation and greater bargaining power at the time prompted the maker of aluminium products to price the offering towards the bottom end of the marketing range.

The return of retail interest began with the smaller IPOs of BaWang International (Group) Holding Ltd, China's largest herbal shampoo maker, and China Metal Recycling (Holdings) Ltd, the nation's largest recycler of scrap metal by revenue. Hong Kong individuals ordered 446 times the initial amount of shares reserved for them in BaWang's June IPO. -- Bloomberg