Hong Kong retail investors chasing after IPOs

South China Morning Post article yesterday (June 25).

Bawang shampoo is popular in China, and is available at NTUC Fairprice.

THERE ARE a couple of interesting things about this South China Morning Post article yesterday (June 25), chief of which is the news of a dash by Hong Kong retail investors for IPOs.

That’s a sharp contrast to the still cautious sentiment in Singapore to the equities market - and there are no big IPOs on the Singapore horizon.

The Hong Kong IPO that investors are plonking down big money for is that of Bawang International Holding, a China shampoo retailer whose products come with awful-looking packaging, in my view. Incidentally, they are available at NTUC Fairprice in Singapore too.

The IPO has drawn more than HK$16 billion worth of subscription money from local investors, according to the newspaper article.

That hair-raising amount equaled about 100 times the shares available for retail investors.

Bawang is offering 700 million new shares at HK$1.95 to HK$2.38 each, representing 17.1 to 20.8 times its earnings last year.

Fascinating – the PE ratio is not some measly 3-5 X that IPOs may be sold at in Singapore.

And unlike in Singapore, the retail orders for Bawang shares were backed by a large pool of margin financing.

“We have received margin financing applications for HK$1 billion to buy Bawang’s IPO in the first 15 minutes after the offer opened, and the eventual amount totaled HK$3 billion,” said Nelson Chan, general manager of Bright Smart Securities.

Spurring the use of margin finanacing is the drop in interest cost to 1.5-3%, compared to 6-7% in 2007, for IPO applications.

Bawang shares will debut on the HK mainboard on July 3.