Top news
Hot demand for landmark biotech IPO
Equities Ascletis Pharma’s Hong Kong IPO covered on first day of bookbuildingBY FIONA LAUA strong response to the
HK$3.59bn (US$457m) Hong
Kong IPO of ASCLETIS PHARMA, the
CITYSûlRSTûUNDERûNEWûRULESû
accommodating early-stage
biotech companies, is setting a
positive tone for at least nine
other such deals this year.
The books of Hangzhou-based
Ascletis’s IPO were covered quickly
ONûTHEûlRSTûDAYûOFûBOOKBUILDINGûONû
Tuesday and were multiple times
covered by Thursday, people close
to the deal said.
The company is offering 224m
primary shares, or 20% of its
enlarged share capital, at a price
range of HK$12–$16 per share,
pointing to a market
capitalisation of US$1.7bn–
$2.3bn before the greenshoe is
exercised.“Feedback during pre-
marketing was already very
positive. We are now seeing some
investors putting in sizable
INmATEDûORDERSûSOûASûTOûGETûAûBIGGERû
allocation,” said one of the people.
!SûTHEûlRSTû)0/ûCANDIDATEûTOû
take advantage of an April 30
rule change allowing biotech
lRMSûWITHûNOûPROlTSûORûREVENUESû
to list in Hong Kong, Ascletis has
caught investors’ attention.
Singaporean sovereign wealth
fund GIC has already pledged
US$75m as a cornerstone
investor for the deal.
h!SCLETISûISûTHEûlRSTûSUCHûLISTINGû
and its business is relatively mature
compared to other candidates, so
the IPO should be able to generate
decent interest. GIC’s support is also
POSITIVEûFORûTHEûmOAT vûSAIDûAûFUNDû
manager who plans to place orders
for the deal.Founded in 2013, Ascletis
focuses on anti-viral, cancer and
liver-disease treatments and
currently has seven drug
candidates. It started to
commercialise a hepatitis C virus
drug candidate in June, while
another HCV drug candidate is also
nearing the commercial stage.LONG PIPELINE
A positive outcome for Ascletis’s
mOATûISûCRUCIALûTOûENCOURAGEû
more biotech companies to
choose Hong Kong over the US
as a listing venue. At least nine
other early-stage biotech
companies are lining up for a
Hong Kong listing this year to
raise at least US$2.8bn in total.
The US is traditionally the hub
for biotech listings as investors
there are more familiar with such
companies and know how toVALUEûTHEMû"UTûTHEû(ONGû+ONGû
stock exchange, which changed
its listing rules in a bid to attract
more innovative companies,
hopes biotech companies will see
local listings as a way to raise their
PROlLEûINûTHEû#HINESEûMARKET
h7EûNEEDûTOûGETûTHEûlRSTûDEALû
right to convince investors to
invest in the sector. Investing in
biotech is a very long-term
investment and it takes years for
the companies to turn
PROlTABLE vûSAIDûAûBANKERûAWAYû
from the Ascletis deal.
Investing in biotech
companies is notoriously risky.
The companies’ ability to
generate revenue, and
EVENTUALLYûPROlTS ûRESTSûENTIRELYû
on their ability to complete the
development of clinical-stage
drug candidates, obtain the
necessary regulatory approvalsChina default spurs buyside rethink
Emerging Markets China Life Franklin bought more than US$300m of now defaulted CERCG bondsBY FRANCES YOONThe shock offshore default of
CHINA ENERGY AND RESERVE CHEMICALS
GROUP could force one of the
country’s biggest institutional
investors to be more cautious
towards its investments in
offshore Chinese bonds.
China Life Franklin Asset
Management, a Sino-foreign
joint venture controlled by
China’s largest insurance
company, was one of the biggest
buyers of CERCG’s overseas
bonds, according to four sources
familiar with the investments.
China Life Franklin, which
reported HK$200bn (US$25.5bn)
under management as of June
2017, purchased a total of more
than US$300m-equivalent of
Hong Kong dollar and US dollar-
denominated CERCG bonds in
two deals in 2015 and 2016, the
sources said.
It is not clear if the asset manager
still held those bonds when CERCG
defaulted on its debts in May,
sending prices plunging. China LifeFranklin declined to comment on
individual investments.
The fund was far from the only
investor to support CERCG’s
OVERSEASûlNANCINGSû4HEûSIZEûOFûITSû
purchases, however, shows that
the rapid build-up of overseas
Chinese debt has encouraged
investors to make big,
concentrated bets, often involving
lRST
TIMEûISSUERSûORûDEALSûWITHûNOû
international credit rating, as was
the case for CERCG.
“China Life liked the yield in a
low-interest environment, and
they have bought unrated deals
before,” one of the sources told IFR.
3TATE
OWNEDû#HINESEûlNANCIALû
institutions have been the
biggest buyers of offshore bonds
from mainland issuers, and
bankers say individual exposures
of US$300m or more are far from
unusual, especially when the
issuer appears to be state-owned.
CERCG described itself to
potential investors as a state-
owned company, according to
fund managers who attended
roadshow presentations.That reassurance helped it
raise more than US$1.4bn from
overseas bond sales in three
years, including US$150m from
South Korean investors as
recently as April.
CERCG failed to repay the
principal on its US$350m 5.250%
notes due May 11, initially blaming
its troubles on a temporary
liquidity crunch. In June it
appointed FTI Consulting to work
towards a “consensual solution”
for a possible restructuring of its
offshore bonds.
Thomson Reuters prices put the
US$400m 6.125% January 2019
bonds at less than 30 cents on the
dollar, implying that market
participants expect heavy losses.
Norman Lin, CEO of CERCG’s
Hong Kong unit, declined to
comment.MORE CAUTIOUS APPROACH
The shock default has forced
investors to rethink their
expectations of state support,
making it harder for some Chinese
issuers to access offshore capital.“You have to be more selective
in terms of doing your credit
WORK vûSAIDûAûlXED
INCOMEû
OFlCIALûATû#HINAû,IFEû&RANKLIN û
without referring to CERCG in
particular. “You need to look at
the nitty gritty. The whole
market is becoming tighter in
terms of liquidity.”
/NEûBANKERûSAIDûHISûlRMûHADû
raised concerns over CERCG’s
business before a US$400m three-
year bond issue in January 2016.
“We told CERCG at the time
THATûITûWOULDûBEûDIFlCULTûTOû
continue with the transaction,
but our management still
approved it and we went ahead
to do the deal,” said the banker.
More recently, questions have
emerged over CERCG’s
ownership structure.
In an offering circular in
December 2017, CERCG described
itself as a state-controlled company
ANDûLISTEDû"EIJINGû-UNICIPALû
Commission of Commerce and a
unit of China National Petroleum
Corporation among its owners. IFR
WASûUNABLEûTOûCONlRMûTHISûWITHû