Beijing IPO meddling leaves bad taste in Hong Kong

Sichuan Baicha Baidao Industrial Co

23/09/2024 05:42

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Hudson Lockett
       HONG KONG, Sept 23 (Reuters Breakingviews) - Few people
like it when an initial public offering flops on the first day.
The People's Republic, though, is taking such dislike to a new
and unwarranted level. The China Securities Regulatory
Commission has put on hold three bubble tea makers' plans to
list in Hong Kong, Reuters reported on Friday. Why? Because
peers have performed badly. Such heavy-handed intervention will
leave a bad taste in the city.
    It's true that fellow boba-drink brewers have had a tough
time. In China, the industry relies on breakneck expansion
through franchisees, resulting in urban centres quickly becoming
suffused with stores on every corner, keeping prices low and
margins razor thin. Shares in Chabaidao  2555.HK  fell by more
than a quarter on their stock market debut. They now languish
almost 70% below their IPO price after first-half profit fell by
around a fifth compared to the same period last year. 
    It's an open question whether the trio that were hoping to
brew up interest in an IPO would have fared any better. One of
them, Mixue Bingcheng, at least has scale on its side. It's the
country's largest bubble tea chain with around 36,000 stores,
some four times more than its closest rival, Guming, and had
been hoping to raise up to $1 billion in a Hong Kong listing. 
    Mixue's size may well be part of the problems. In April, the
CSRC promised to encourage “leading enterprises of industries in
the Mainland to list in Hong Kong”, following a new approvals
regime for offshore IPOs that launched in March of 2023.
    The ostensible goal of that regime was to restart overseas
listing after years of drought following a crackdown on
technology companies selling stock abroad. Instead, the new
system has produced a massive backlog of offshore listings still
waiting for approval from the CSRC. That is hardly "bolstering
Hong Kong's financial centre status”, as the commission vowed to
do in April. 
    Yet, whether or not to sell new stock in an unfavourable
market is the domain of a company's executives and investment
bankers. If they want to risk it - and if investors want to risk
buying it - so be it. 
    Sure, delaying the flow of offshore IPOs will certainly
prevent more embarrassing day-one drops by companies the market
deems overvalued. But it will also prevent successful listings
by companies looking for funding, making the Hong Kong bourse's
attempts to shake off three lean IPO years all the harder. In
attempting to pick winners, Beijing may simply end up putting
them on ice.

    Follow @KangHexin on X
    
    CONTEXT NEWS
    The China Securities Regulatory Commission has delayed plans
by at least three Chinese bubble tea makers to launch an initial
public offering in Hong Kong this year due to the poor
performance of peers who listed their shares on the city’s
bourse, Reuters reported on Sept. 20.
    IPO applications for two of the hopefuls lapsed earlier this
year after six months of waiting for approval from the
commission.
    The commission in April said it would encourage “leading
enterprises” of mainland industries to list in Hong Kong.

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Graphic: Chabaidao shares have plummeted since listing    https://reut.rs/3XSU14e
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 (Editing by Antony Currie and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  LOCKETT/  
hudson.lockett@thomsonreuters.com))