News
Tencent bestseller stirs IPO fever
Equities More than 400,000 retail investors flock to China Literature listingBY FIONA LAUThe HK$8.33bn (US$1.07bn)
Hong Kong IPO of CHINA
LITERATURE, Tencent Holdings’
e-book unit, has shown how
interest for Chinese technology
listings is spreading from
institutional investors to retail
buyers in the city.
China Literature wrapped up
its float last Tuesday, pricing it
at the top end of the HK$48–
$55 indicative range to value
the company at US$6.4bn.
Demand was strong from
day one with the books heavily
oversubscribed after the first
day of bookbuilding and margin
financing volumes soaring.
Still, the final outcome was eye-
popping.
More than 400,000 retail
investors pledged their money
for a piece of China Literature,
resulting in an enormous
HK$520bn subscription and
leaving the tranche more than
620x oversubscribed, according
to people close to the float.
Those numbers make
China Literature the second
most popular Hong Kong IPO
among retail investors afterChina Railway Construction
Corporation in 2008. That IPO
attracted HK$535bn of retail
orders.
In comparison, about 120,retail investors subscribed to
the float of ZhongAn Online
P&C Insurance, another
hot Chinese tech IPO in
Hong Kong, in September,
pouring in HK$233bn for an
oversubscription rate of 392x.
A banker working with
China Literature said the extent
of retail demand was well
above expectations.
“The Tencent and ZhongAn
effect is obviously much bigger
than what we had expected.”
Internet and messaging giant
Tencent, which held a 65.38%stake in China Literature
before the IPO, has become
one of the most popular stocks
among Hong Kong retail
investors. Its shares have risenmore than 480 times since
listing in 2004.
The strong showing of
ZhongAn’s HK$13.7bn IPO
has also lured more investors
into the China Literature float.
Shares of China’s first online-
only insurer raced up as much
as 64% after its September
28 listing. Last Thursday,
ZhongAn’s shares closed at
HK$77.3, 29% above the IPO
price.
Under the clawback
mechanism, China Literature
sold 33% of its IPO shares toretail investors instead of the
original 10%.GOOD OLD DAYS
The institutional books of
China Literature were more
than 50x covered, with
more than 600 investors
participating.
The overwhelming interest
has raised hopes for a return
of the good old days of red-
hot Hong Kong IPOs after
years of lacklustre support for
new listings, mainly from the
Chinese property and financial
sectors.
“We’ve had too many ‘friends
and family’ deals in the past
few years. China Literature
successfully drew retail
investors’ attention back to the
IPO market, which is healthy
for upcoming transactions,”
said a banker away from the
deal.
Others cautioned, however,
that few companies could
expect the same kind of
response.
“Institutional interest
is definitely back, and
surprisingly they can take
aggressive valuations fromNDRC reopens pipeline 06 CSRC slows down IPOs 06 Huishan restructuring 08
Dandong Port sinks into default
Restructuring Bondholders reject offer of higher coupon after political scandalBY INA ZHOUThe operator of the main
Chinese port on the border
with North Korea has defaulted
on Rmb1bn (US$151m) of
bonds after investors rejected
an offer of higher coupon
payments.
DANDONG PORT GROUP,
20% owned by the local
government in Liaoning
province, becomes the latest
mainland issuer to run into
financial difficulties followinga political scandal involving its
chairman.
In mid-October, the company
offered to raise the coupon
on the 5.86% notes by 164bp
to 7.5% to dissuade investors
from exercising a put option,
but they turned down the offer
and demanded their money
back.
The five-year notes, issued
in September 2014, came with
a put option at the end of the
third year, as well as an option
for the issuer to raise thecoupon rate at that point. As of
October 30, the issuer had only
paid Rmb58.6m of interest on
the notes.
“Given a heavy debt burden,
the pressure on payment in
the short term is great. As of
October 30, our company had
failed to pay principal on the
notes, which constituted a
default on the notes,” Dandong
Port said in a statement last
Monday.
Dandong Port has been
piling on debt in the past fewyears. Particularly in 2014
and 2015, it raised a total
Rmb22.9bn from the domestic
bond market, taking advantage
of the ample liquidity there at
the time.
Meanwhile, it invested over
Rmb5bn annually to build new
berths and warehouses and
reclaim land, with a goal of
growing its capacity to 200m
tons of cargo a year by 2020.
Instead, the local economy
has been hit by a growing
clampdown on cross-border
trade with China as Beijing
responds to pressure from the
US to isolate North Korea.
In addition, Dandong Port’s
access to the domestic debt“We’ve had too many ‘friends and family’
deals in the past few years. China Literature
successfully drew retail investors’ attention back
to the IPO market, which is healthy for upcoming
transactions.”