Hong Kong Broadband Network, or HKBN, had a distinctly underwhelming market debut as its shares ended flat on Thursday after holding the city’s largest initial public offering of the year.
Hong Kong’s second-largest broadband provider raised HK$5.8 billion ($748 million) on March 5 after pricing its shares at HK$9 per share, at the top end of the marketed range, thanks to strong demand from a number of long-only institutional investors and specialist technology funds.
The share price fell to HK$8.83 as soon as the company’s stock began trading on the Hong Kong Exchange but rose to HK$9.02 by 10am Hong Kong time. They hit a high today of HK$9.09 per unit by 11:40am before settling down at the IPO price for the remainder of the day, according to Bloomberg data. Shares closed at HK$9 per unit.
Sources say it’s likely the IPO's stabilisation agent — Goldman Sachs — kept the price from falling too dramatically. “The share price was stable all day [before the first drop], it never went under HK$9. [The stabilisation agent] had enough money from the greenshoe to buy shares back,” one Hong Kong-based equity capital markets banker told FinanceAsia. “There wasn’t real buying interest, the stock kept touching HK$9.”
Without the stabilisation, it’s likely the stock would have been lower, the ECM banker said.
Potential repercussions
Banking sources say the debut for HKBN does not bode well for Hong Kong’s IPO markets, which has had a weak start to the year.
So far this year, some $2.6 billion has been raised via 49 deals compared with $4.3 billion and 48 deals for the same prior-year period, according to Dealogic data.
“It will make the issuers who attempt to come to market next — and their underwriters — more cautious, at least for a period of time,” Philippe Espinasse, a former ECM banker and author of “IPO Banks” and “IPO: A Global Guide”, told FinanceAsia. “This was the largest IPO in Hong Kong and the second-largest in Asia so far this year, so people will pay attention to what has happened, especially as the market overall traded up today.”
The Hang Seng finished March 12 up 0.58%, having shed around 5% in the period since March 2.
“The fate of any IPO will impact sentiment [at the moment],” said a second Hong Kong-based ECM banker.
This year’s other notable deal, Jasmine Broadband Internet Infrastructure Fund, has also disappointed. Jasmine raised Bt36.67 billion ($1.1 billion) in Thailand after pricing its shares at the bottom of the range on February 4. Shares closed March 12 at Bt9.45 per unit, 3% below its IPO price.
It’s not been all dire in Hong Kong. Jewellery exporter KTL International and Beijing Chunlizhengda Medical Instruments both debuted on the exchange on March 10 and are up 37% and 17% up to March 12, respectively.
Even so, issuers and syndicates will have to ensure IPO issue sizes and valuations are realistic near-term, Espinasse said.
HKBN sold itself as both a yield and growth play, a rare combination. The company has invested billions since 2000 to build an expansive fibre network in Hong Kong, which allowed HKBN to grab market share in residential broadband services at the expense of smaller operators HutchTel and i-Cable.
Now HKB is targeting corporates in Hong Kong, aiming to move in on some of HKT Trust’s clients, its larger rival.
HKBN is forecasting between 4.8% and 5.4% yield for 2015, and 10% to 15% growth annually. This was tremendously attractive to both yield-focused investors and those after growth. Sources close to the deal at the time noted it is unusual for any company in Hong Kong to have such high growth and yield forecasts — HKT Trust only offers 5% yield and 5% growth for example.
Mixed support
Investors who don’t typically play Hong Kong markets — namely funds in the US and Europe — invested in the IPO, which was a big win for its private equity investors, including private equity firm CVC, Singapore sovereign wealth fund GIC and US buyout shop Carlyle.
Pre-greenshoe, CVC will see its stake in HKBN drop to 14.4% from 68.4%, while GIC's shareholding will dip to 9.9% from 10.9%. The company's chief executive officer William Yeung saw his stake drop to 2.55% from 3.2%. Sources say Yeung made roughly $7 million from the IPO.
However HKBN’s story didn’t sell as well with hedge funds or retail investors. A number of hedge funds were reportedly interested in buying stock at HK$8 per unit, the bottom of the marketed range, but balked at HK$9.
Similarly, the retail tranche was undersubscribed, only accounting for 8% of the total book.
Goldman Sachs, JP Morgan and UBS oversaw the deal as joint sponsors and joint global coordinators, while CLSA and HSBC acted as joint bookrunners. Rothschild was financial advisor to the company.
