Hong Kong’s biggest IPO of 2024 flops

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Hong Kong’s biggest initial public offering of the year flopped on Tuesday as shares of Chinese bubble tea chain ChaPanda dropped as much as 38 per cent from its listing price in its trading debut.

ChaPanda, also known as Chabaidao, raised almost HK$2.6bn (US$331mn), with shares priced at HK$17.50. Its public offer for retail investors –accounting for 10 per cent of the shares offered – was only 0.5 times subscribed, coming at a time when the city is struggling to revive its stock market. The remaining institutional portion was 1.1 times subscribed. Hong Kong’s benchmark Hang Seng index has fallen more than 15 per cent over the past year.

IPOs in Hong Kong raised a total of $604mn in the first three months of this year, down 29 per cent from last year and making it the lowest start to a year by proceeds since 2009, according to data compiled by the London Stock Exchange Group.

Founded in 2008, ChaPanda boasts about 8,000 stores, mostly in mainland China, and has said it would spend more than half of its IPO proceeds on strengthening its supply chains and improving operations.

The market for tea chains such as ChaPanda in mainland China was Rmb104bn ($14bn) in 2022, almost double the market size in 2018, according to the China Chain Store & Franchise Association. Sales at ChaPanda’s franchises jumped to Rmb17bn in 2023 from Rmb10bn in 2021.

But Dickie Wong, executive director of research at Hong Kong-based Kingston Securities, said bubble tea chains were likely to find maintaining customer loyalty difficult in a competitive arena. Rivals Mixue Bingcheng, Guming Holdings and Auntea Jenny are also planning IPOs in Hong Kong in the coming months.

Consumers “come and go” with these bubble tea chains, Wong said. “They don’t have a tendency or loyalty to any one of the companies. They can buy their bubble tea or lemon tea from this company today and the other company tomorrow.”

“After this IPO the sentiment will even get worse because they received an undersubscription and this gives a very bad impression that Hong Kong’s IPO market is simply not effective,” he added. “The overall market will remain lukewarm.”

Hong Kong’s stock exchange is ranked 10th on the LSEG’s global IPO stock exchange rankings in the first quarter, behind Mumbai and Shanghai, despite listings on the mainland also collapsing to record lows. The city’s Hang Seng index declined for a fourth consecutive year in 2023.

Gary Ng, a senior economist at Natixis, said Hong Kong would probably face the “double whammy of elevated US interest rates and weak confidence in China-related assets” for the rest of this year.

Ng added that IPOs might still attract anchor investors but not cornerstone investors, showing the market was “not comfortable locking their capital in new Hong Kong listings”.

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