Currencies hold back IPOs 09 Masala fix 10 Too much bank capital 11
WuXi AppTec lines up HK top-up
Equities Hong Kong listing application comes only four months after Shanghai IPO
BY FIONA LAU
Chinese contract medical
researcher WUXI APPTEC has
turned to Hong Kong for a
share sale only four months
after its Shanghai IPO fell short
of its fundraising target.
The parent of Hong Kong-
listed WuXi Biologics filed for
a Hong Kong listing last week.
Based on last Thursday’s closing
price in Shanghai, the deal
could raise up to US$2bn.
WuXi AppTec’s decision to
turn to Hong Kong so quickly
for funds has raised doubts
on whether China’s domestic
capital markets can support
the rapid growth of “new
economy” companies, even
after China stepped up efforts
this year to attract listings from
the sector.
WuXi AppTec, which delisted
from the NYSE in 2015, was the
first high-profile new economy
company to go public in the
A-share market after regulators
unveiled reforms targeting
technology listings in March.
The China Securities
Regulatory CommissionIt fast-
tracked its listing approval,
allowing it to bypass the long
queue of listing applications.
But it only managed to raise
Rmb2.25bn (US$328m) from
the Shanghai float, less than
half the Rmb5.74bn it earlier
said it needed to fund its
projects. The reduced size was
mainly due to the regulator’s
unwritten valuation cap of 23
times historical earnings, a
person close to the deal said at
the time.
As a result, the Shanghai
IPO left billions of renminbi
on the table. The stock priced
at Rmb21.60, a 64.8% discount
to the average valuation of
listed peers in the scientific
research and technology
services industry at the time,
and promptly rocketed to over
Rmb130 in its first three weeks.
WuXi AppTec is now aiming
to raise much more from
its Hong Kong listing. The
company is planning to sell
10%–15% of its enlarged share
capital in the Hong Kong
listing. Based on its A-share
market capitalisation of
Rmb91bn last Thursday, the
deal could raise US$1.3bn–
$2bn.A-share listed companies
normally sell shares in Hong
Kong at a discount of around
30%–50% because of valuation
differences in the two markets.
Some bankers reckon WuXi
AppTec’s example shows that
the A-share markets are still not
allowing Chinese tech issuers
to raise capital effectively.
“The valuation cap in the
domestic market limits thefundraising size of these
IPOs. For funds-hungry tech
companies, an offshore IPO
may work better,” said a Hong
Kong-based banker.CHINA PUSH
Other bankers, however,
dismissed talk that a far larger
overseas IPO would derail
China’s bid to attract more
domestic listings from thetechnology sector, coming after
smartphone maker Xiaomi
abandoned plans in June to
sell the first China depositary
receipts. The new instrument
would allow overseas-domiciled
tech issuers to list back home.
Domestic bankers believe
some tech issuers would still
prefer an A-share listing as it
offers a higher valuation.
“The A-share marketgenerally offers higher
valuations for companies.
A-share IPOs also generally
trade better in the aftermarket
than the Hong Kong ones,”
said a Beijing-based banker.
“The significant jump in WuXi
AppTec’s A-share price has
paved the way for a sizable
Hong Kong listing.”
The company’s shares closed
at Rmb87.48 last Thursday,
more than four times the IPO
price, for a 2019 P/E of about
57.
In contrast, tech listings in
Hong Kong in the past year
have mostly traded below
water. Ping An Healthcare
and Technology, an online
healthcare and medical
company, saw its shares trade
at HK$44.25 last Wednesday,
19% below its IPO price.
While China’s CDR push
appears to have stalled, the
CSRC continues to target tech
listings.
“The regulator still talks to us
from time to time on bringing
more tech IPOs to the market.
It’s just that now they will want
more mid-sized tech companies
to list first as stock markets are
bad,” said another Beijing-based
banker.
The Shanghai Composite
Index is the worst performing
major market in Asia Pacific
this year, down 17.5%.
WuXi AppTec is a global
contract research firm for the
pharmaceutical, biotechnology,
and medical device industries.
It provides an integrated
portfolio of services throughout
the drug research and
development process.
The company posted a net
profit of Rmb1.3bn in the first
half of 2018, up 67% year on
year.
Goldman Sachs, Huatai Financial
and Morgan Stanley are joint
sponsors for the Hong Kong
float.
Proceeds will be used for
pharmaceutical and biotech
projects, mergers and
acquisitions, loan repayment
and working capital. For daily news stories
visit http://www.ifrasia.comSHANGHAI GIVEAWAY
WUXI APPTEC PRICED ITS A-SHARE IPO WELL BELOW ITS PEERSSource: Thomson Reuters, IFRWuXi AppTec IPO price (Rmb21.60)020406080100120140May Jun Jul Aug Sep“The valuation cap in the domestic market limits
the fundraising size of these IPOs. For funds-
hungry tech companies, an offshore IPO may
work better.”