Economic Observation Network reporter Lao Yingying There are more and more "mini IPOs" in the Hong Kong stock market.
On August 10, Lemon Meng Film and Television (09857. HK) was officially listed on the Hong Kong stock market at an issue price of HK$27.75 per share. On August 12, the stock briefly rushed to HK$34.35 per share, and then fell into a volatile decline. As of press time, the share price of Lemon Film and Television is HK$27.75 per share, with a market value of HK$10 billion.
Lemon Film & Television issued a total of 15.1393 million shares in the Hong Kong stock IPO, accounting for about 4% of its total share capital, of which nearly half were subscribed by Cornerstone investors, and the new shares circulating in the market were only about 2% of the total share capital.
Such a small proportion of issuance can be called a "mini IPO". In fact, Lemon Film and Television is not alone, since this year, more than a dozen such companies have sought to list in Hong Kong, and the proportion of new shares in the total share capital is less than 10%.
"In the past, there were fewer such small-scale distributions, but this year there are more." A Hong Kong investment banker told the Economic Observer Network reporter.
According to the reporter's interview, this situation is mainly related to the downturn in the Hong Kong stock market, the cooling of the new stock market, and the high break rate. In order to account for the withdrawal demands of investors in the primary market, the company has partially given up the financing ability of listing. At the same time, as few circulation orders as possible can make it less difficult for enterprises to control the disk, which can maintain the stock price and avoid too many inverted valuations of one and two levels. However, this practice is also a double-edged sword, the liquidity is insufficient, the activity of stock trading will obviously be affected, coupled with the arrival of the later lifting of the ban, the stock price is prone to violent fluctuations.
Why "mini" IPOs are popular
There are many examples like Lemon Film and Television.
Minimally Invasive Brain Science, a star enterprise in the medical field (02172. HK) IPO, which was listed in Hong Kong on 15 July, issued a total of 13.7 million shares, representing only 2% of the total share capital, corresponding to a net proceeds of only HK$278 million. Runmaide-B (02297.HK), a vascular interventional robotics company that was also listed in July, offered 23.8 million shares worldwide, accounting for 2.04% of the total share capital, and raised only HK$149 million in the IPO.
The reporter's statistics found that since the beginning of this year, Zhiyun Health (09955. HK), Mingchuang Premium (09896. HK), Tuya Smart-w (02391. HK), Noah Holdings-S (06686.HK), Fast Dog Taxi (02246. HK), Main Gene (06667. HK), Xuanwuyun (02392. New stocks such as HK) and Ruike Bio-B (02179.HK) account for less than 10% of the total share capital. According to statistics, from 2019 to 2021, the average proportion of new shares issued in the Hong Kong stock market to the total share capital after issuance is about 20%-25%.
"In the past, there were fewer such small-scale distributions, but this year there are more." A Hong Kong investment banker told the Economic Observer Network reporter. The reporter found that last year,s SenseTime-W (00020.HK) IPO was also such an operation. At that time, the company also issued only 5% of new shares, totaling 1.725 billion shares. Of the 5% of the new shares, 1.033 billion shares belong to cornerstone investors and 236 million shares belong to the old shareholder Shanghai International, all of which have lock-in time, and only about 1% can be bought in the secondary market.
The above-mentioned investment bankers said that this practice is to issue and list first, in fact, it has partially abandoned the financing ability of listing, and there are fewer circulating disks, which is better to control the disk. After the listing of the enterprise, it can account for the exit demands and capital dividend rates of investors in the primary market, who think that there are fewer circulation plates and less difficulty in controlling the disks, which can maintain the stock price and avoid too many inverted valuations of the first and second levels.
Chen Gang, co-director of the Research Department of Aide Financial, said in an interview with the Economic Observer Network reporter that this situation is mainly related to the downturn in the Hong Kong stock market and the cooling of the new stock market. From the perspective of the secondary market, the Hang Seng Index has retreated to 14.5% since the beginning of the year, the break rate of Hong Kong IPOs this year is close to 80%, and it is not uncommon for the valuation of the primary and secondary markets to be inverted.
"Some companies are only listed for the sake of listing, and their main purpose is to expand brand influence and promote international business, thereby reducing the scale of issuance and meeting the basic listing rules." As for the consequences, the good thing is that the effect of amplifying liquidity by maintaining the company's stock price with smaller funds can be maintained. The bad side is also the problem of liquidity, the stock trading activity will obviously be affected, the lack of liquidity will lead to price distortion, coupled with the arrival of the later lifting of the ban, the stock price will fluctuate sharply. Chen Gang said.
Be wary of subsequent stock price fluctuations
Judging from the Hong Kong stock companies that currently offer a small proportion of shares to list, the "mini IPO" may be able to solve the problem of not being too much upside down in the primary and secondary markets to a certain extent, but the trading volume caused by the circulation plate is too small, in fact, it may not be able to solve the problem of low stock prices.
For example, at the time of the listing of Lemon Film and Television, the pre-IPO valuation was about HK$10 billion, the issuance valuation was HK$9.714 billion, and the valuation of the first and second levels was roughly the same; after the listing, the stock price performance was decent, the opening of the listing day broke, the closing fell by 2.7% on the same day, on the third day of listing, Lemon Meng Film and Television once soared 20% to HK$34.35, but soon fell back to the level of the issue price.
Minimally invasive brain science is similar, basically keeping the first and second valuations not upside down, and the market value of the issue price is 14.2 billion Hong Kong dollars, which is slightly higher than the valuation of 13.7 billion Hong Kong dollars in the Pre-IPO round; In terms of stock price performance, it fell only slightly by 0.16% on the first day, and only fell 0.3% after a week of listing, falling to the lowest point since the listing of HK$20.15/share in early August, and then the stock price rebounded back to the level of HK$24.6/share shortly thereafter.
Fast Dog Taxi, which has a IPO ratio of about 5%, has seen its share price fall even more. In June, Fast Dog Taxi was listed on the Hong Kong stock market at an issue price of HK$21.5 per share. After the listing, the stock price of Fast Dog Taxi fell and fell, and as of the close of trading on August 18, the stock price was 6.090 Hong Kong dollars per share, and the stock price plummeted by 70% in two months.
The extremely low issuance ratio also led to another problem, that is, the trading volume after the listing was very low, and most of the post-listing daily trading volume was only a few million shares, such as the trading volume of Runmade-B on the first day of listing was 5.63 million shares, Zhiyun Health was 4.28 million shares, and Ruike Bio-B was 3.44 million shares.
Chen Gang believes that this situation will cause the financing scale and valuation of the new stock market to decline, the market is not good, the new shares cool down, will cause investment banks to reduce the valuation of enterprises during the inquiry period, as well as the decline in the total amount of financing, which will lead to many companies abandon listing, thereby further reducing the heat of the new stock market.
"Serious institutional investors in the secondary market have paid attention to this small proportion of issuance, and if the company raises much more than the IPO round, it is very suspicious, indicating that it has other demands in addition to normal, traditional listing financing." The above-mentioned investment banker told the Economic Observer Network reporter.
The reporter noted that the scale of public market fundraising of these companies is almost completely inverted with the amount of funds raised in the primary market. In November 2021, MicroPort Brain Science conducted a round of Pre-IPO round of financing, at that time, the valuation had reached US$1.75 billion (about HK$13.7 billion), including CICC Capital, Huayi Capital and other institutions. MicroPort Brain Science raised US$150 million (about HK$1.2 billion) in its Pre-IPO round last year, compared to HK$278 million in its public market net proceeds.
Runmade-B raised US$72 million (about HK$565 million) in Round D financing before listing, led by Ping An Capital and followed by International Capital Seresia Asset Management and Lighthouse Canton. The Runmade-B open market raised a total of HK$149 million, which is far less than the Series D financing.
When this type of company is lifted later, the stock price usually fluctuates sharply, for example, on the day of the lifting of the ban on June 30, 2022, the stock price fell by 46.77% to 3.13 Hong Kong dollars per share.
So, what issues should be paid attention to for retail investors in the secondary market of new stocks? Chen Gang said that from the Perspective of the Hong Kong stock market alone, there is a direct positive correlation between the new stock market and the quality of the secondary market, so if the overall secondary market environment cannot be relatively stable and the valuation is improved, the valuation and heat of the new stock market will not have much space. Secondly, for the above-mentioned enterprises that reduce the scale of the IPO, they still need to pay attention to certain liquidity risks, and the new shares should still start from the actual fundamentals of the enterprise itself.
"Investors should pay more attention to the fundamentals and valuation of the company itself, the size of the issuance does not determine whether to rise or fall, the real decision is whether the secondary market is willing to pay." The Futu investment research team also told reporters.