Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAReading a bubble
W
hile the response to China Literature has been
overwhelming by any measure, potential
investors may want to read between the lines
before they pile into Hong Kong’s red-hot IPO market.
Even in Hong Kong, it’s not often that a company being
listed convinces 400,000 individual investors to part with
their hard-earned savings. Indeed, it was only recently
that several Chinese companies struggled to get to the
100-investor minimum to be allowed to list on the city’s
exchange.
China Literature, the e-book business of market darling
Tencent Holdings, had no such trouble. At 400,000 retail
applications, orders for the stock came from one in every
six households. Total retail subscriptions for the public
offering ranked second only to that of China’s biggest
railway builder in early 2008.
Those statistics show what’s possible in Hong Kong when
a company manages to engage the city’s vast retail market.
But they are also a warning sign for any investor wary of
being caught in a bubble.
Hong Kong investors have only a narrow universe of
technology stocks to choose from, and this year’s 94% gain
in Tencent’s stock has triggered a search for the next big
thing in the sector.
ZhongAn Online P&C Insurance raced up following
its September 28 debut, to the delight of about 120,
individual investors who placed orders for the IPO.
China Literature takes that momentum to another level,
but it poses the question of whether the city’s tech stocks
are entering bubble territory.
Tencent’s shareholding would be enough to guarantee
a strong response even in a soft market, so it will be some
time before the answer becomes clear. Even the next
batch of tech-related listings may offer little guidance:
Yixin Group, an online car trading platform, also counts
Tencent among its biggest shareholders. Gaming hardware
and software maker Razer is closing its books while close
to US$70bn of retail money is still locked up in the China
Literature deal.
Hong Kong has waited long enough for investors to get
excited about IPOs again. Keeping that momentum going is
the challenge for the next chapter.Back to basics
A
sian bond investors must be glad that China’s
congress is over. Alongside the various political
pronouncements and the change to Xi Jinping’s job
title, it’s also important that the country’s regulators are
now back at work.
The National Development and Reform Commission,
China’s top economic planning agency, has resumed
registrations for overseas bond issues, granting debt quotas
to around 40 mainland companies. That’s welcome news
FORûISSUERSûWITHûOFFSHOREûOBLIGATIONSûTOûRElNANCE ûAFTERûANû
unusually slow period for approvals had sparked talk of a
clampdown on offshore debt. It’s also very good news for
bond buyers.
Another round of NDRC approvals - in what is already a
RECORDûYEARûFORû'ûBONDûISSUESûFROMû#HINAû
ûCONlRMSûTHATû
the regulator has no fundamental objection to overseas
borrowing.
7ITHOUTû.$2#ûAPPROVALS ûRElNANCINGûRISKûBECOMESû
a genuine concern for many mainland companies. That
explains the steady stream of short-dated bonds from
COMPANIESûINûDESPERATEûNEEDûOFûlNANCING ûSINCEûMATURITIESû
of less than a year are exempt from the registration
requirement.
/VERSEASûINVESTORSûHAVEûEXTRACTEDûTHEIRûPOUNDûOFûmESHû
from borrowers in that predicament, but they would rather
play in longer, liquid instruments free from the shadow of
regulatory interference.
Ultimately, it should be up to foreign investors, not
Chinese regulators, to dictate which companies are
WORTHYûOFûINTERNATIONALûINVESTMENTû"UTûUNTILûCAPITALûmOWSû
freely, the vetting process needs to be as consistent and
transparent as possible. Procedural delays, even to allow for
a party congress or a clear run for China’s sovereign bond,
are a step in the wrong direction.China Literature takes
momentum to another level,
but it poses the question of
whether the city’s tech stocks
are entering bubble territory.