Chinese investment bank sells itself poorly in IPO

Noah Holdings

27/09/2018 11:08

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Alec Macfarlane
    HONG KONG, Sept 27 (Reuters Breakingviews) - China
Renaissance  1911.HK   has made a poor advertisement for its
investment-banking services by botching its own flotation.
Shares in the boutique tech adviser, run by former Morgan
Stanley  MS.N   rainmaker Fan Bao, dived over 20 percent in
their Hong Kong debut on Thursday, valuing the company at less
than half of its original $5 billion target. A shaky market is
partly to blame, but the firm also overpriced itself. For an
investment bank, such a fumble might be hard to explain to
clients.
    Set up in 2004, China Renaissance has built a reputation as
a go-to shop for hot mainland startups looking for capital, as
well as providing wealth management and other services. In the
last year alone it helped companies like online
takeaways-to-taxis giant Meituan Dianping  3690.HK   and
shopping app Pinduoduo  PDD.O   go public, and both enjoyed
strong debuts. 
    Which begs the question of how the company managed to get
its own IPO wrong. It had originally targeted a valuation of up
to $5 billion, Thomson Reuters publication IFR reported in June.
But by the time the firm began marketing the offering in
September, that had been revised down to a range between $2.3
billion and $2.5 billion, and shares priced at the bottom end of
that. However, even at HK$31.80 per share - equivalent to 14.4
times the projected earnings for next year, according to IFR –
China Renaissance sought a premium to many peers. By way of
comparison, Eikon data shows U.S.-based investment bank Evercore
 EVR.N , China International Capital Corp  3908.HK   and wealth
manager Noah Holdings  NOAH.N   trade at 12.7, 13.5 and 13.8
times respectively. 
    Bao’s bad hand wasn’t all self-dealt. Escalating trade
tensions have sparked concerns about Chinese consumption and
corporate debt, pushing Hong Kong and mainland equities into
bear-market territory. Recent debutantes Meituan Dianping and
hotpot chain Haidilao  6862.HK   – two of the stronger stories
to grace the Fragrant Harbour this year – both closed below
their IPO prices on Thursday, sparking fears investor appetite
may be fading for even the best names. 
    There are plenty of Hong Kong flotations that have plunged
out of the gate only to recover later. But one would expect
better from an investment bank, whose ability to price shares
just right is its raison d’etre. This fumble could make sales
pitches to future clients awkward. 
    On Twitter https://twitter.com/AlecMac11
    
    CONTEXT NEWS
    - Shares in China Renaissance, a Beijing-based investment
bank primarily focused on advising Chinese technology companies,
fell more than 20 percent in its trading debut in Hong Kong on
Sept. 27. 
    - The company, founded by former Morgan Stanley and Credit
Suisse banker Fan Bao,  priced its initial public offering at
HK$31.80 per share, the bottom of its marketed range. 
    - The shares closed at HK$24.70, roughly 22 percent below
the IPO price.  
    - Goldman Sachs and ICBC were joint sponsors of the IPO.
    - For previous columns by the author, Reuters customers can
click on  MAC/ 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
China Renaissance plunges almost 20 pct on Hong Kong debut   
 urn:newsml:reuters.com:*:nL8N1WD0BB
BREAKINGVIEWS- Chinese investment bank IPO flaunts tech
conflicts     urn:newsml:reuters.com:*:nL3N1VZ18Q
BREAKINGVIEWS - Chinese bank IPO seeks to emulate its tech
clients     urn:newsml:reuters.com:*:nL4N1TS08L
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Pete Sweeney, Sharon Lam and Karen Kwok)
 ((alec.macfarlane@thomsonreuters.com; Reuters Messaging:
alec.macfarlane.thomsonreuters.com@reuters.net))