Bearer of Hope Midea: Hong Kong's Largest IPO in Three Years

Hong Kong's initial public offering (IPO) market is facing a significant test. After more than two years of downturn, triggered by China's regulatory actions against tech companies and the failed U.S. listing of Didi Global, the upcoming IPO of home appliance manufacturer Midea Group could inject fresh momentum. IPO proceeds in Hong Kong have amounted to only $2.5 billion so far this year—a dramatic drop from $42.8 billion in 2021. Midea, which recently began accepting orders for a secondary listing in Hong Kong, plans to raise up to $3.5 billion through the sale of its shares. If achieved, this would be the largest IPO since JD Logistics raised $3.6 billion in May 2021. Midea is offering its shares at a price approximately 20% below the valuation of its already-listed shares in Shenzhen, responding to currently dampened consumer confidence in China due to the real estate crisis and disappointing corporate profit growth. A successful IPO could bolster confidence in Hong Kong's IPO market, which has been heavily impacted by economic and regulatory challenges in China. However, Barry Wang of Oberweis Asset Management emphasizes that, aside from macroeconomic factors, the greatest hurdle is the lack of new, exciting Chinese companies eligible for listings. While IPOs in Hong Kong have averaged a gain of 2.1% on their first trading day, those with proceeds exceeding $100 million have lost 1.4%. For example, the IPO of bubble tea maker Sichuan Baicha Baidao Industrial plummeted by 27% on its debut in April, despite raising $330 million. Recognizing the issue, Beijing promised in June to enhance support for IPOs outside the mainland, potentially providing a boost to Hong Kong's market. Pre-orders for Midea's IPO were fully subscribed on the first day and continued to rise in the following days. Insiders report significant interest from alternative asset manager Hillhouse Investment and Singapore’s sovereign wealth fund GIC Pte. Midea's recent strong performance also bolsters hopes. The company reported a net profit of 20.8 billion yuan ($2.9 billion) for the first half, exceeding consensus estimates of 18.97 billion yuan. Citigroup emphasized that Midea's focus on international markets renders the company less vulnerable to the uncertainties of the Chinese economy. The anticipated momentum is further supported by the solid performance of Midea’s Shenzhen-listed shares, which have risen 13% so far this year, while the benchmark CSI 300 index has fallen 7%. Nonetheless, some market participants, such as Nicholas Chui of Franklin Templeton, criticize the often low allocations in smaller deals, which diminish the appeal of such investments. Yet, larger IPOs are in the pipeline. For instance, China Resources Holdings is facing resistance against a planned $6 billion valuation of its beverage division, Bloomberg reports.