China Zhongwang's IPO cools Hong Kong hopes

A two-month rally in Hong Kong's stock market has raised hopes that the exchange could again play host to a steady succession of large Chinese initial public offerings.

Hong Kong was the centre of the IPO universe for several years until the global financial meltdown put paid to the listing ambitions of fast-growing mainland companies.

Amid the ongoing reluctance of the Chinese authorities to re-open the country's domestic bourses to new offerings, there have been signs that the Hong Kong exchange's listing committee could be about to jolt back to life.

But some perspective has been added by the disappointing first-day performance of China Zhongwang, an aluminium products maker that last week raised $1.3bn, making it the world's largest IPO.

It failed to trade above its offer price of HK$7 per share last Friday and closed down 5 per cent, recovering a little yesterday with a gain of 0.8 per cent to HK$6.68.

China Zhongwang followed a handful of smaller listings on the bourse this year that raised a combined $350m, according to Dealogic, the data provider.

Dealmakers in the city say that at least three more Chinese companies are hoping to file listing applications soon, with others watching from the sidelines. Together, the three companies could raise up to $1bn.

People familiar with the situation said the companies included BBMG Corp, a construction material maker, Bawang International, a maker and distributor of personal care products, and Lumena, a sodium sulphate producer.

Issuers and dealmakers have been attracted back to the market by the stock market rebound, in which the benchmark Hang Seng index has soared by 53 per cent since March 9.

Institutional investors who missed the early part of the bull run have been scrambling to reinvest in Asian equities, having fled last year.

During the book-building process for China Zhongwang last month, the institutional book was nearly three times covered and there were real hopes that a company due to benefit from raised infrastructure spending would get off to a solid start.

But the retail tranche of the offering was only 70 per cent covered, signalling public scepticism over pricing.