Commentaries

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Bankers leave little upside for new Hong Kong IPO

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A dozen or so companies have raised money in Hong Kong over the past month to cash in on rebounding equity markets, but that window is threatening to close after a string of poor debuts.

   Glorious Property was the latest, falling by 15 percent on its debut on Friday. Its poor performance came on the heels of China South City, a real-estate developer in Guangdong province, which had the worst trading debut in Hong Kong this year by falling 23 percent.
 
  Even companies in more stable businesses, such as men’s clothing retailer Lilang and sports shoes maker Peak Sport, also fell below their offer prices last month.

   One reason for the wobble is that issuers and investment banks seem to have been greedy. IPOs are generally priced at a discount to comparable listed stocks to reflect risk and to encourage trading in the after market. But with strong investor demand, they have steadily been whittling away at the discount and relying on the froth in the market to get issues away.

   Of late, IPOs have often been more than 100 times oversubscribed with institutions as well as retail investors vying for stock. Thanks to cheap and freely available money, it has been possible for investors to borrow to fund their IPO purchases. Banks have been offering interest rates on IPO loans as low as 1.8 percent.

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