Bloomberg News

Chow Tai Fook, New China Life Drop as Hong Kong IPOs Falter

December 16, 2011

(Updates with closing share prices in second paragraph.)

Dec. 15 (Bloomberg) -- Chow Tai Fook Jewellery Group Ltd. and New China Life Insurance Co. fell on their first trading day in Hong Kong, reflecting a slump in demand for new equity as China’s growth slows and Europe’s debt crisis persists.

Chow Tai Fook, the world’s largest listed jewelry chain, dropped 8 percent to HK$13.8 at the close of Hong Kong trading after raising HK$15.8 billion ($2 billion) in an initial public offering. New China Life, the country’s third-largest life insurer, fell 9.8 percent to HK$25.7 at the market close after completing a $1.9 billion IPO.

New China Life had the worst debut among Hong Kong IPOs of at least $1 billion since June, according to data compiled by Bloomberg. Other companies selling stock for the first time, including Haitong Securities Co. and Guodian Technology & Environment Group Corp., canceled or reduced offerings in the past week as the economic turmoil sapped demand for equity.

“Investors are holding on to their cash, doubtful about not only new stock, but also shares in the secondary market,” said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., which oversees about $1.5 billion. “Worries about Europe will keep investors cautious in months to come.”

Near the Bottom

Hui Xian Real Estate Investment Trust fell 9.4 percent on its April debut after raising $1.8 billion in Hong Kong’s first yuan-denominated initial public offering. Samsonite International SA, the world’s biggest branded-luggage maker, lost 7.7 percent on its first day of trading in the city in June.

Chow Tai Fook and New China Life fell even after pricing their IPOs at or near the bottom of ranges marketed to investors. Hong Kong’s benchmark Hang Seng Index is down 6.3 percent since Dec. 7, the day before New China Life priced its shares.

“With the uncertain outlook for the macro economy, it’s difficult to ask investors to buy newly listed stocks at the moment,” said Alex Au, Hong Kong-based managing director of Richland Capital Management Ltd., which oversees $300 million.

Chow Tai Fook’s offer price values the company at about 15 times estimated profit for the year ending March 2013, according to people with knowledge of the matter. Tiffany & Co., the New York-based luxury jeweler, trades at 15.4 times the average analyst estimate for 2012 earnings, data compiled by Bloomberg show. Signet Jewelers Ltd., the world’s second-largest jewelry chain, trades at 11.3 times.

39 Percent Plunge

China Polymetallic Mining Ltd. plunged 39.2 percent yesterday on its debut after raising HK$1.1 billion in a Hong Kong IPO. Baoxin Auto Group Ltd. lost 14.1 percent yesterday in the first day of trading after a HK$3.2 billion offering.

Chow Tai Fook expects “buying power of customers to weaken” amid the slowing global economy, Chairman Henry Cheng said in Hong Kong today. The company is “confident” about its long-term sales performance, he said.

“With gold’s price coming down from its peak, sales growth at gold shops would inevitably fall,” Jason Yuan, a Shanghai- based analyst at UOB Kay Hian Holdings Ltd., said in a phone interview today. “The high-growth period is over.”

The jeweler’s same-store sales growth for the six months ended Sept. 30 was 62 percent, according to its listing prospectus. It had 1,335 outlets in mainland China and 86 in Hong Kong, Macau and other Asian markets as of Sept. 30.

33 Month Low

New China Life is raising more equity after its expansion in a market that has grown an average 30 percent a year during the past three decades brought its solvency ratio, a gauge of its ability to settle claims, below regulatory requirements. Chinese life insurers’ capital strength may weaken further as stocks declines amid an economic slowdown crimp profitability, Fitch Ratings said in an e-mailed report on Dec. 7. The Shanghai Composite Index yesterday fell to its lowest close since March 2009.

The company’s “quality isn’t perceived as good as other listed insurers in the market,” said Au of Richland Capital. “If the general macro economy is not so certain, investors tend to stick with higher quality names.”

New China Life raised $1.3 billion in Hong Kong and $580 million in Shanghai, where it will start trading tomorrow.

Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc and JPMorgan Chase & Co. managed Chow Tai Fook’s IPO. BNP Paribas SA, China International Capital Corp., Deutsche Bank, Goldman Sachs Group Inc. and UBS AG are among banks that arranged New China Life’s sale.

--With assistance from Garry Smith, Kana Nishizawa and Anjali Cordeiro in Hong Kong. Editors: Mohammed Hadi, Frank Longid

To contact the reporters on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net; Fox Hu in Hong Kong at fhu7@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net


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