Red hot Hong Kong IPO market is cooling as retail buyers flee

[HONG KONG] Retail investors' enthusiasm for Hong Kong initial public offerings is suddenly waning.

Individual buyers placed orders for an average 28.7 times of the shares initially available to them in July, according to data compiled by Bloomberg excluding the city's small-cap Growth Enterprise Market. That's the lowest retail-book ratio since January 2016 and down from 1,191 times in April. Six out of 21 offerings this month failed to attract sufficient retail demand and relied on institutions to fill the gap, pushing the ratio of undersubscribed deals to the highest since November 2016.

A falling stock market and higher borrowing costs are suppressing mom-and-pop's appetite for new listings. The benchmark Hang Seng Index has slumped 15 per cent from a January high, bringing its year-to-date loss to 5.8 per cent. A jump in Hong Kong's interbank rates has forced some local brokerages to raise interest rates by more than 100 basis points on margin loans that investors take to apply for IPOs.

Qeeka Home (Cayman) Inc, an interior design platform backed by Baidu Inc that began trading on July 12, had orders for only 14 per cent of its initial retail portion, the lowest among deals this month. Chinese developer Redsun Properties Group Ltd, which also listed on July 12, received bids for just 18 per cent of its initial retail stock, the second-lowest ratio.

Qeeka Home has lost 18 per cent from its IPO price, while Redsun Properties has gained 26 per cent.

BLOOMBERG