Bottom line: A New York IPO by drug maker MediTech and Hong Kong listing by BOC Aviation will both meet with tepid reception and weak debuts, the former due to its small size and latter due to lack of big growth potential.
A couple of IPOs are in the headlines as we head into the new week, led by a relatively sizable listing plan by drug maker China MediTech that could be the first significant new offering in New York this year by a Chinese firm. Meantime, Bank of China (HKEx: 3988; Shanghai: 601398) is also announcing plans to spin off and list its airline leasing unit, marking its latest asset sale as China’s banks scramble to raise cash to cushion their rapidly crumbling balance sheets.
Each of these listing stories is a bit different, reflecting the big differences between MediTech, a private company controlled by Hong Kong billionaire Li Ka-shing, and Bank of China, one of China’s big 4 state-run banks. MediTech’s choice of New York over Hong Kong probably reflects Li Ka-shing’s recent bearish stance on China, and also highlights the relative stability that New York offers over Hong Kong and China. Bank of China’s choice of Hong Kong reflects the preference by big state-run companies to make overseas listings in the former British colony, and Bank of China is itself also listed there.
Let’s begin with MediTech, which said it plans to raise up to $100 million in its New York offering. (company announcement) The company’s ordinary shares currently trade on the London Stock Exchange’s AIM market for small cap companies, and the New York shares will trade as American Depositary Shares (ADSs).
MediTech said it will make its offering on the Nasdaq, and its shares will trade under the symbol HCM, which indicates the offering plan is relatively advanced. It adds that a registration statement has been filed with the US securities regulator, but that it hasn’t become effective yet.
This particular offering comes as a much larger wave of US-listed Chinese companies are abandoning their New York listings through privatizations, and returning home to re-list. One of the latest to do so was Mindray Medical, a medical device maker that comes from a similar field to MediTech’s.
Tepid Debut on Tap
I’ve previously said that smaller companies like MediTech may not be well suited to New York listings, and that only Chinese industry leaders like Alibaba (NYSE: BABA) and Baidu (Nasdaq: BIDU) should consider offerings so far away from home. Accordingly, I wouldn’t expect this particular offering to get a very strong reception and expect it will probably price in the bottom half of its range and make a lackluster debut.
Meantime, Bank of China has just announced its plans to spin off and separately list BOC Aviation, but it hasn’t said much else. (company announcement) It said the unit’s shares would be listed on the main board of the Hong Kong Stock Exchange. I haven’t seen any financials for the company, though other recent similar transactions suggest the company could be valued in the $3-$5 billion range. If that’s the case, we can probably expect an IPO of around $500 million.
This particular sale comes just weeks after Bank of China’s Hong Kong affiliate announced it was selling its Hong Kong-based Nanyang Commercial Bank to bad asset manager Cinda (HKEx: 1359) for HK$68 billion ($8.7 billion). The 2 cash raising exercises also come as most of China’s big banks scramble to raise billions of dollars, mostly through new note and share issues, to bolster their balance sheets as a bad debt crisis looms.
This particular offering doesn’t look particularly attractive, as it’s not in a very fast growing sector and is probably being rushed due to Bank of China’s desire to quickly raise cash through the sale of non-core assets. Accordingly, I would expect the share sale, like MediTech’s, to price in the bottom half of its range and also post a tepid debut when its shares start trading.
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