Posted by: Bruce Einhorn on October 2, 2009
So much for the revival of the IPO market in Hong Kong. Demand for new listings evaporated after the Lehman bankruptcy last year, but signs of economic recovery in China and the West have led companies recently to try their luck. Unfortunately, most of the them have had dismal debuts. The latest flop: Glorious Property, a Chinese real estate developer. The company raised $1.28 billion from investors last week, but on its first day of trading today, the stock price dropped as much as 20%. (Here’s more from Bloomberg on the news.)
What’s wrong? First of all, bad timing. After the poor results in New York yesterday, Hong Kong’s market was bound to fall, too. Even if U.S. markets hadn’t spooked investors, though, Hong Kong’s deals would be in trouble. There have been just too many IPOs all at once ($6.5 billion in just three weeks). Also, the deals have tended to price at the top of the range, thanks to initial enthusiasm. However, many investors have had second thoughts and decided things were too expensive. As Frederik Balfour and I wrote recently, even before the most recent IPO disappointments, there were people warning that things had gotten out of hand. “With economists such as Ma saying China’s recovery may not have legs, the longevity of the IPO revival in Hong Kong could be in doubt. ‘People are getting overexcited because there’s been such a dearth [of deals],’ says Simon Aird, managing director in the capital markets department at Credit Suisse (CS), who points out that part of the current flurry is due to the backlog of delayed deals and that only the best companies are tapping the markets.”
There are several big IPOs next week, including gaming tycoon Steve Wynn’s Wynn Macau on October 9. If there are more disappointments, though, this might be the last batch of Hong Kong IPOs we see for a while.