CSRC warns new-economy firms not to overvalue their IPOs
June 19, 2018 Category Stock Markets, Weekly
The China Securities Regulatory Commission (CSRC) has warned of a bubble in the share prices of new-economy companies, singling out Ping An Good Doctor, ZhongAn Insurance, China Literature, Yixin Group, and Razer, noting that the wild price swings after their IPOs have raised concerns about overpricing. The CSRC has asked issuers, underwriters, and institutional investors to “exercise caution” in the initial public offering (IPO) book building process after it recently launched a pilot program to support innovative companies to list on domestic stock exchanges and allow overseas listed mainland companies to issue China Depositary Receipts (CDRs). Book building is the process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. Several new-economy companies have quickly plunged from their peaks or fallen below their offer prices after being listed in Hong Kong.
Ping An Good Doctor, the biggest listing in Hong Kong so far this year, dropped below its IPO price of HKD54.9 on its second trading day on May 7. ZhongAn Insurance, China Literature, Yixin Group, and Razer were the four biggest technology listings in 2017. Among them, three have already fallen below the offer price. Yixin Group was the worst performer, down 51% from its IPO price. ZhongAn and Razer have fallen 9% and 42% respectively. Compared with their respective peaks, the combined market value of these companies has evaporated by more than HKD160 billion.
Meanwhile the market is looking to a few major upcoming initial public offerings (IPOs). China’s restaurant review and delivery firm Meituan Dianping plans to file for an initial public offering (IPO) in Hong Kong, which would make it the city’s second multibillion-dollar public listing by a tech start-up this year. Meituan is considering selling about 10% of the company, the minimum required under Hong Kong exchange rules, to avoid dilution. Meituan was most recently valued at USD30 billion, making it the world’s fourth most valuable start-up, according to CB Insights. Founded in 2010 by Wang Xing, Meituan handled USD57 billion of transactions last year between about 320 million active buyers and more than four million merchants. But the company faces competition with entities backed by Alibaba in food delivery, with Didi Chuxing in ride hailing, and with its own backer Tencent in payments.
Wise Talent Information Technology, which operates China’s largest job recruitment site Liepin, is seeking to raise as much as HKD3.12 billion in Hong Kong – the second biggest IPO by a unicorn company this year after Ping An Good Doctor’s USD1.1 billion listing in April. Wise Talent is backed by venture capital firm Matrix Partners China. The retail tranche – 10% of the total offer size – will start trading on June 29 on Hong Kong’s main board. Rick Dai, Chairman, CEO and Founder of Wise Talent, said that since a lot of overseas highly-skilled Chinese are gradually returning to China for employment and using the platform, there is a big demand in the market. He added that the IPO was well-timed because of the rapid growth in Chinese tech start-ups and innovation. Liepin, launched in 2011, is China’s largest job recruitment site by revenue. Its database included 248,600 companies, 38.9 million professionals and 101,800 headhunters in 2017. About 40% of the IPO proceeds will be used to enhance research and development (R&D) capabilities, such as hiring AI and data specialists to improve existing matching algorithms and develop AI-empowered voice and facial recognition technologies to interview potential job candidates via robots.
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