June 14th, 2011
04:52 AM GMT
Hong Kong, China (CNN) – Kaching, kaching, kaching!
That’s the sound of billions of dollars being made in Hong Kong. It’s been echoing across our airwaves over the past twelve months from a series of high-profile IPOs by non-Asian companies. If these companies were moths, the bright allure would be the shimmer of money from mainland China’s nouveau riche.
Luxury-brand IPOs account for a large chunk of the billions recently being made in Hong Kong. Italian fashion house Prada could raise as much as $2.7 billion in its share offering later this month. Luggage maker Samsonite just bagged about $1.25 billion in its share sale last week. Milan Station, a local luxury-bag reseller, aimed to raise just $35 million in its May IPO. Actual requests shot past $7.4 billion. And last year, L’Occitane International’s IPO locked in more than $700 million in France’s first foray onto the Hang Seng, Hong Kong’s benchmark bourse.
As if that weren’t enough, non-luxury brand IPOs accounted for even more of Asia’s shine in the past year. Glencore, the world’s largest clearinghouse for commodities, cranked out about $10 billion in May. AIA and the Agricultural Bank of China together raised $50 billion in their IPOs last year – the latter of which was the largest in history.
All told, these companies will have raised an astounding $64 billion through Hong Kong IPOs in the last twelve months.
But there’s also a $64,000 dollar doubt that’s starting to creep into investor minds. With growing signs that the world economy is slowing down, is the attractive glow of Hong Kong fading with it?
Initial indicators lean yes.
Armand Yeung of Central Asset Investments says he doesn’t expect Prada to price at the top end of its range anymore. The low end is about $3.68, the high end is about $6.15. Last week, Samsonite had fixed its share price at $1.86 – right at the bottom of its final revised guidance for investors.
MGM China, the Macau casino operator, did manage to price at the top of its range but its share price fell more than 5% in just the first week of trade. Huaneng Renewables, which specializes in wind power, saw a similar story despite pricing its shares in the lower half of its range. It plunged more than 11% on its initial trading day last Thursday, before clawing back to end the day down nearly 3%.
And Resource House, the Australian mining firm, actually cancelled its $2.32 billion Hong Kong IPO on June 5, citing slowdowns in resource demand from emerging economies like China and India.
Do these recent events show weakness in those respective companies? Or are global market forces pressuring share price and investor hopes downward?
For other big-name companies pondering public offerings in Hong Kong they should be watching carefully. Coach, Moncler, Jimmy Choo and most recently Manchester United are on that list.
As for investors, a slight slowdown at the IPO buffet might not be a bad thing. If you think public offerings are coming too fast and furious, you are not alone. Yeung of Central Asset Investments says we may be seeing a case of investor “indigestion.” Yet he admits Goldman Sachs, Morgan Stanley and UBS – some of the main underwriters for these big-name IPOs – have no choice but to keep swallowing each offering as it comes along.
That’s because of the potentially tremendous growth of China. And with Hong Kong at the mainland’s doorstep it has prime location to capitalize on those luxury moths flying straight for the brightness of China’s flame. The question now: will they eventually get burned?
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