Citic Securities Co Ltd, China's largest listed brokerage, fell more than 10 percent on its Hong Kong stock market debut on Thursday despite a jump in the broader market, underscoring poor appetite for new share sales in the face of global market volatility.
The disappointing start for Citic Securities, which raised a less-than-expected $1.7 billion in its first listing outside the mainland, could dash the hopes of other Chinese companies planning to raise funds in Hong Kong, the world's biggest IPO market for the past two years.
The offering is the first of nearly $35 billion in share sales in Hong Kong and China still planned in the coming months by financial companies, including Haitong Securities, New China Life and China Guangfa Bank.
It's a very difficult time for any IPO because market sentiment is so weak right now, said Patrick Yiu, a director at CASH Asset Management. Investors want to look for stocks now with a track record with very low valuations. They don't have the appetite for new stocks.
Equity fundraising worldwide slumped to its slowest since early 2009 in the third quarter, Thomson Reuters data shows. Year-to-date, IPOs worldwide are down 7 percent.
English Premier League soccer champions Manchester United, British gymnasium operator Fitness First and Spanish state lottery firm Loterias are among the prominent deals to have been postponed due to turbulent markets.
Citic Securities, often seen as a proxy for China's stock market, earns about a third of its profits from brokerage activities and about 18 percent from trading.
With more than 2,000 listed companies, China's stock market was the world's second most active by turnover behind the United States in 2010, according to Citic Securities' prospectus.
Citic Securities is among the few companies to successfully launch a stock offering in Hong Kong during the past few months, with a long list of deals pulled or postponed.
Part of its success can be attributed to the fact that nearly the half of the offer was mopped up by high profile investors, including Singapore's state investment vehicle Temasek Holdings Pte Ltd
By 1 a.m. EDT, Citic Securities <6030.HK> was trading at HK$12.74, compared with the offer price of HK$13.30, having fallen as low as HK$11.90. It sold shares at the bottom of a revised price range of HK$13.30-$15.20 a share last week.
The fall in its shares was in contrast to gains in the broader market. The benchmark Hong Kong stock exchange index <.HSI> was up 4.3 percent, while the financial sector sub-index <.HSHFI> jumped 6 percent.
Citic Securities <600030.SS>, already listed on Shanghai's stock exchange, is part of China's state-backed conglomerate Citic Group which was formed in 1979 as China's first financial group.
Its bumpy start demonstrates the difficult fundraising environment even for Chinese state-backed firms in Hong Kong.
Right now the market condition is not very good, but I'm satisfied the IPO got completed, Chairman of Citic Securities, Wang Dongming, told reporters at a listing ceremony at the Hong Kong Stock Exchange.
The listing comes at a time when global stock markets have plunged amid concerns about the European debt crisis. The benchmark Hang Seng index <.HSI> tumbled to a 2- year low on Tuesday, falling in eight of the past nine sessions, during which the index lost about 15 percent.
Citic Securities is the biggest Hong Kong listing since the $2.5 billion IPO by luxury goods maker Prada <1913.HK> in June.
Investors remain wary of equity markets because of growing concerns that Europe's debt troubles could trigger a new banking crisis and fears of renewed recession in the United States and a slowdown, or even a hard landing, in China.
Just last month, some $4.5 billion worth of deals were pulled in Hong Kong including Sany Heavy Industry <600031.SS> and rival XCMG Construction Machinery Co Ltd <000425.SZ>.
Apart from Citic Securities, only five companies, including shoemaker Hongguo International Holding <1028.HK> and tea company Tenfu Holdings <6868.HK>, sold stock in Hong Kong in the past two weeks since offerings resumed after a two-month hiatus.
The five offerings raised a total of $510 million. The slowdown in share sales in the past months in Hong Kong, Singapore and other main markets in the region contributed to a 49 percent slump in Asia Pacific equity capital markets in the third quarter from a year earlier.
Securities companies in China are forecast to post annual profit growth of nearly 20 percent between 2011 and 2013, buoyed by an increase in capital markets activity and new businesses such as margin financing and private equity investments, BOC International estimated.
Citic Securities was the first Chinese investment bank to go public, with an IPO in Shanghai in 2003. It has grown organically and through acquisitions and most recently bought a 19.9 percent stake in Credit Agricole's
The company plans to use about 65 percent of the Hong Kong share sale proceeds for overseas expansion in research, sales and trading, with 30 percent set aside to develop foreign exchange, commodity and prime broking services for hedge funds.
Citic Securities' Shanghai-listed shares trade at a discount to its Chinese peers because of its lower return on equity of 8.5 percent for 2011, compared with the sector average of 12 percent, Macquarie Group said in a research note.
Citic Securities was the sole global coordinator of the offer, with a group of banks including BOC International, CCB International, Bank of America Merrill Lynch and Credit Agricole's
(Additional reporting by Kelvin Soh and Alison Lui; Editing by Denny Thomas, Michael Flaherty and Alex Richardson)