Retail investors snap up Cogobuy

Cogobuy, a Shenzhen-based e-commerce company, has raised $177 million after pricing an initial public offering of shares in Hong Kong in the middle of its targeted range.

Retail investors, encouraged by the solid performance of other mainland listings in Hong Kong recently, were central to the deal’s success. Indeed, local investors placed roughly $500 million of orders, allowing the syndicate to exercise the clawback option and increase the retail slice to 30% from 10%, according to a banker close to the deal.

The company, which specialises in online sales of electronic components and operates in a sector with tremendous potential, sold 343.8 million shares, or 25% of its enlarged share capital, at HK$4 per unit after being initially marketed between HK$3.20 and HK$4.48. If the greenshoe option is exercised, the company will secure $204 million.

Cogobuy acts as a one-stop shop for SMEs, which can place orders on its online marketplace. Cogobuy then provides the order information to its upstream component suppliers — similar to the model used by JD.com and Amazon, the only difference being that Cogobuy’s customers are SMEs and not individuals.

The institutional tranche was also multiple times covered, with the book made up of China-focused funds, international long-only funds, hedge funds and wealth management firms, the majority located in Asia, the banking source added. Some 99 institutions took part in the deal.

An attractive valuation resonated well — Cogobuy was being marketed at a large discount to Hong Kong-listed HC International, a vertically-integrated e-commerce company that is currently trading at 36 times its 2014 earnings. Cogobuy is now trading at 18.4 times its 2014 earnings, and 11.8 times its 2015 earnings, with a market cap of $708 million.

But technical valuations were of less importance to retail investors hoping for a repeat of the success of other recently listed Chinese companies.

Luye Pharma Group’s shares are up 11% since raising $764 million, while shares in Tian Ge Interactive Holdings, a social video platform operator partially owned by Sina Corp, are up 9% after its $207.3 million IPO.

Similarly, Beijing Urban Construction Design & Development Group’s shares have jumped 23% since its $119.7 million flotation. All deals were completed earlier this month.

“A number [of recent] IPOs have performed well, which has given more confidence to retail investors,” the banker told FinanceAsia.

Others have not fared as well — Beijing Digital Telecom, one of China’s largest mobile handset and digital product store chains, is down 4% since its July listing.

But overall sentiment has improved from earlier this year. Excluding HK Electric’s $3.1 billion blockbuster IPO in January, only $4.5 billion of deals were completed during the first five months of 2014. Last month represented an about-turn for Hong Kong’s IPO markets, with 24 deals raising $3.9 billion in June alone. And so far up to July 14, eight deals have raised $1.2 billion, according to Dealogic data.

The recent rebound has even encouraged pork producer WH Group to have another go at listing its shares almost five months after its high-profile flop.

UBS acted as the sole sponsor on the Cogobuy deal, while taking on joint coordinating responsibilities alongside Jefferies.