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The three companies will bring the total amount of IPO funds raised in Hong Kong this year to $277 billion ($36 billion), which is down 16.6% from 2006 when the giant offerings by Industrial and Commercial Bank of China and bank of China inflated the numbers.
In many ways, yesterday’s first-day performances were in line with the demand shown for these three companies during the IPO with Sinoma being the unrivalled investor favourite. Having seen the institutional portion of its $538 million offering 165 times covered and the retail portion 283 times covered, China’s largest cement manufacturer gained 34.9% yesterday as institutional investors tried to add to their small allocations.
The strong demand for the IPO, which was arranged by BOC International and UBS, allowed Sinoma to fix the price at the top of the range and some observers said they had thought that this might hamper the performance in the secondary market.
"To my surprise, Sinoma performed very well on its debut. With reference to some syndicate reports, its valuation is not cheap," says one analyst.
This didn’t seem to worry most investors, however. The share price surged more than 40% above the $4.50 IPO price shortly after opening, but the gains were quickly trimmed down to around HK$6. Continued buying saw it edge gradually higher again during the morning session, but in the afternoon it returned to the HK$6 level, finally closing at HK$6.07. More than 580 million shares changed hands during the session, or about 62% of the shares sold during the IPO.
One trader compared the cement maker to the recent H-share listing of China Railway Group, which is the only other Hong Kong IPO this month to have recorded substantial gains on the first day. At $2.48 billion, China Railway’s H-share IPO was much larger than Sinoma’s offering, but it had good help from the strong rally in its A-shares, which started trading four days before the H-shares, and finished up 27% on its first day of Hong Kong trading on December 7.
Having witnessed China Railway’s strong performance, many investors likely felt that Sinoma ought to be a winner as well, given that both companies are exposed to the same booming construction industry. China Railway is the largest construction company in China and the third largest in the world, with a particular focus on transportation infrastructure and municipal works projects.
The strong debut is good news for the pipeline of listing candidates that are looking to launch their offers early in the new year, as it shows investors are still interested in buying companies that they perceive to have good growth prospects.
BYD also closed above its IPO price, although the gains were much less impressive than for Sinoma and trading was thin. However, at $758 million, BYD’s offering was 40% bigger than Sinoma’s.
The manufacturer of mobile handset casings and keypads, which is a spin-off from Hong Kong-listed battery maker BYD Group, opened below its issue price of HK$10.75 but bounced to an intraday high of HK$11.28 shortly thereafter and held above par for the rest of the day. It closed at HK$11, representing a 2.3% gain on the day. Only 31.4 million shares were traded, which gives a turnover of no more than HK$340 million ($44 million) and equals less than 6% of the shares sold during the IPO.
The thin trading seems to back up earlier claims from the bookrunner that the quality of the order book was very high despite the modest interest overall. The fact that the stock held above the issue price also suggests that UBS, as the sole bookrunner, got the pricing right. However, market watchers say BYD’s price performance also suggests that the bookrunner was actively stabilising the stock on the first day by buying back part of the greenshoe.
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