Key facts
- Cornerstone investors in Hong Kong's IPO market are becoming more hesitant to subscribe to new deals.
- Over 60% of new listings in Hong Kong during the third quarter are trading below their initial offering prices.
- Companies are increasingly taking a more direct role in selecting investors for their IPOs.
- Strategic investors, business partners, and close allies are being prioritized for allocations in some IPOs.
- New listings in Hong Kong have seen an average first-day gain of approximately 30% this year.
Hong Kong's initial public offering (IPO) market is experiencing a shift as cornerstone investors, who typically commit to holding shares for a minimum period, are becoming more selective. This has led to some issuers postponing their listings, particularly as over 60% of new listings in the third quarter are now trading below their initial prices.
Companies are increasingly taking a more active role in choosing who receives allocations in their IPOs, moving away from traditional competition among investment firms. This trend involves carving out room for strategic investors, business partners, and close allies, sometimes referred to as 'friends and family.' This approach contrasts with past practices where investment firms primarily competed with each other for shares.
Despite the challenges, Hong Kong's IPO market is still seeing strong demand, with new listings delivering an average first-day gain of nearly 30% this year. For instance, Victory Giant Technology Huizhou Co surged 50% on its debut in April, with its chairman seeking to align its investor base with that of its prominent customer, Nvidia. Similarly, Lingyi iTech Guangdong Co's IPO saw a significant portion of institutional bidders fail to secure shares due to management's involvement in allocations.
While picking familiar investors is not new, the current practice appears to be driven by a desire to reward early supporters and ensure that investors who have engaged with the company receive preferential treatment, rather than catering to short-term buyers. This selective allocation strategy can leave institutional investors who have conducted due diligence feeling overlooked.