Three new large stock listings in Hong Kong demonstrate that cries of the Hong Kong market's demise are off the mark despite a summer of violent protests and the shelving of several initial public offerings.
The initial public offering of Budweiser Brewing Co. APAC HK:1876 is the biggest of the bunch. Although half its original size, the postponed listing has priced at a point that, by raising US$5.0 billion, would make it the second-biggest initial public offering (IPO) in the world so far this year.
The sneaker-store operator Topsports International Holdings plans a US$1.2 billion IPO. The company, which distributes Nike and Adidas shoes in China, is the largest sportswear retailer in China. It operates 8,372 stores itself, with another 1,957 outlets run by partners, giving it a 15.9% share of China's sportswear market, according to its prospectus.
The generic drugmaker Shanghai Henlius Biotech HK:2696 listed on Wednesday, raising US$410 million. It's the first sizable IPO since pro-democracy protests started to wrack the city in late spring.
This summer has seen street fighting between protestors and police every weekend. The city is bracing for a huge demonstration on Oct. 1, when Beijing celebrates 70 years since the founding of Communist China in 1949.
Capitalist Hong Kong has created a thunderstorm of electricity rubbing up against those Communist clouds ever since the British handed the city back to China in 1997. These stock offerings suggest the quest for profit and shareholder gains remains strong amid the city's fight to protect its freedoms.
The IPOs are getting off the ground, but barely. They tend to price at the very low end of the range and their post-listing performance does little to set the pulse racing.
Henlius Biotech saw its shares dip as much as 5.9% below their offering price of HK$49.60 on their first day of trade. But after heavy buying heading into the close, suggesting post-listing support from cornerstone investors or other backers of the offering, they closed at HK$49.50.
It is noteworthy that the Chinese drugmaker chose to list in Hong Kong, targeting international investors, instead on the new tech- and R&D-focused Star Market run by the Shanghai Stock Exchange.
Henlius is an offshoot of Fosun Pharmaceutical (SFOSF) , itself the drug arm of the huge Shanghai-based conglomerate Fosun International (FOSUY) . You may recall the name from the failed bid by sister company Fosun Tourism HK:1992 to rescue British package tour company Thomas Cook. Fosun walked away from a proposed deal for it to pay half of a US$1.1 billion bailout, and as the largest shareholder in Thomas Cook now faces a total loss on its holdings, as I explained on Monday.
Henlius mainly makes biosimilar drugs. These are drugs that are similar to existing approved drugs and can compete with them when the original patent expires. They differ from generics in that generics are exact replicas of an active ingredient, while biosimilars are differing but similar drugs that have the same effect.
Henlius in May started sales of one drug in China. That is the first biosimilar approved and launched in the nation, one that treats non-Hodgkin lymphoma. The company has a pipeline of another 20 drugs, including some of its own invention, as well as biosimilars. Many of them target various cancers, including breast, lung and bowel cancer.
The listing price for Henlius was at the lowest point of its offering range of HK$49.60 to HK$57.80. It's a familiar pattern.
Budweiser parent Anheuser-Busch InBev (BUD) on Tuesday priced the offering of its Asia business at HK$27 per share, the lowest end of its HK$27 to HK$30 range, as TheStreet.com reported. That means the IPO will raise around US$5.0 billion, making it the second-biggest stock offering in the world this year. Total raised could hit US$5.75 billion if the overallotment is taken up in full.
Only the US$8.2 billion listing of Uber Technologies (UBER) on the New York Stock Exchange in May has been bigger in 2019.
InBev postponed the original listing in July as the Hong Kong demonstrations got particularly violent. It also became clear in marketing the offering that the brewer was nowhere near matching demand for the US$9.8 billion in stock it originally wanted to sell. That earlier listing tried to price the shares between HK$40 and HK$47.
Budweiser Brewing Co. APAC will have a market value of US$45 billion if the offering goes through as planned.
Topsports International is being spun out of the Hong Kong-based shoe company Belle International, which itself was privatized in a US$6.8 billion deal by Hillhouse Capital Group and CDH Investments in 2017.
The Topsports spinout would value Belle at US$6.6 billion to US$8.0 billion. Belle makes its own brand of shoes and distributes brands such as Puma, Converse and Timberland.
Retail real estate is currently the pariah of the property sector. I've been interviewing institutional investors for a big report for the Urban Land Institute on the current state of the Asia Pacific property markets, and it is logistics space that's drawing all the attention. Retail property gets them running away.
But are running shoes a different proposition? China is crazy for fashion sneakers and that has been driving the growth behind highly profitable Topsports, which generated 2.2 billion yuan (US$309 million) in profit for the fiscal year through February. That was up 23.6% over the prior year. Sales rose 22.7% to 32.5 billion yuan (US$4.6 billion).
So you've got a play on Chinese consumer spending, at a time the Beijing government is looking to spur spending and the domestic economy. Top that with the shift to athleisure sports fashion and Topsports presents an interesting proposition.
Hong Kong has been the most active single exchange in terms of initial public offering volume in six of the past 10 years. In September, 15 companies have applied to go public here and have passed their exchange-board hearing, including Henlius, Budweiser and Topsports.
The Czech consumer finance company Home Credit is also seeking a listing that could raise as much as US$1.5 billion.
The success, or lack of it, for the new listings will present an accurate picture for investor demand for new Asia- and China-focused listings as the summer of discontent here in Hong Kong rolls on.
