Last updated: December 7, 2012 9:35 am

PICC defies expectations with solid debut

Chinese insurer PICC Group defied market expectations with a strong trading debut, rising 6.9 per cent as Hong Kong’s biggest initial public offering in two years caught the eye of retail investors.

The group leaned heavily on cornerstone investors, pre-selling about half of the deal, which was priced toward the bottom of the marketed range last week. The large group of supportive insurance peers and Chinese state groups included AIG of the US, which pledged to buy $500m of stock.

But as a well-known brand, PICC also drew strong demand from retail investors, according to bankers close to the deal, leading bookrunners to claw back some of the stock allocated to institutions for ordinary investors – a requirement peculiar to Hong Kong.

PICC’s upbeat performance was unexpected after a series of debuts for smaller deals struggled to generate interest. Zhengzhou Coal Mining Machinery, a $300m listing, left underwriters led by CICC holding 12 per cent of its deal. The stock fell more than 9.5 per cent on its debut this week and has not recovered.

Both Fosun Pharmaceuticals, which raised $512m in October, and Haitong Securities, the second-largest IPO this year in Hong Kong after PICC, are trading below their listing price.

PICC’s offering raised $3.1bn, making it the second-largest in Asia this year outside Japan, after Felda’s $3.2bn listing in Malaysia, and the fifth-biggest globally. It was the biggest in Hong Kong since AIA, the pan-Asia life assurer, raised more than $20bn in 2010.

The PICC deal helped Hong Kong finally overtake Malaysia’s Kuala Lumpur exchange in the table of new listings this year. But the city still ranks only fourth behind the New York Stock Exchange and Nasdaq in the US, and the Tokyo Stock Exchange, having been the world’s top IPO destination for the previous three years.

A string of large deals has made Malaysia a hotbed of new listings, but otherwise Asia’s IPO market has had a poor year. The overall value of total listings this year is down 47 per cent compared to 2011 in Asia outside Japan, according to Dealogic. The number of deals has fallen 38 per cent in the year to date, making it the slowest year for new equity raising since 2008.

PICC hired 17 bookrunners for the deal – the highest number ever recorded for an IPO – helping it pre-sell around half the shares to cornerstone investors that included Japan’s Tokio Marine and a number of Chinese state enterprises such as State Grid and China Life.

Shares in PICC closed on Friday at HK$3.72, up 6.9 per cent from their issue price, while the broader Hang Seng index slipped 0.3 per cent.

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