Hong Kong’s primary market has definitely had a rough year. The scope of listings has been limited with financial names dominating. In addition, transactions have been priced in a way that has largely shut out international investors at the expense of friends and family accounts. Certainly Postal Savings Bank of China Co’s mammoth IPO forced its way into the limelight, but it was derided by people close and away from the deal as the world’s largest club deal.
So when selfie-editing app maker Meitu turned up with a large, rare and interesting story it grabbed a lot of attention.
But it seems the deal is on the verge of becoming another IPO swallowed by mainland money and, according to bankers close to the transaction, could be dominated by friends and family.
It will come down to pricing. The deal has a potential market capitalisation of HK$35.9bn-HK$40.6bn ($4.6bn-$5.2bn), which international buyers already consider too expensive.
As a Chinese company with an Asia-centric product base Meitu could happily price its IPO for onshore investors, which are typically less sensitive than their international peers. To seal the IPO at the top end of the range would get Meitu the best possible returns, but it would also exclude offshore money.
The company has said it wants to build a global footprint with its flagship photo editing app MeituPic, which already has an Asia-centric user base of around 400m. So to drive off the bulk of international interest in its deal would be to miss a chance to extend its reach. Meitu needs to consider leaving as much on the table as it can.
The balance between onshore and offshore investors might start to even out in secondary market trading, but leaving it up to the aftermarket offers no certainty.
But the deal is bigger than just Meitu. Its IPO could have a long lasting impact on the Hong Kong market and the firms leading and advising on the IPO — China Merchants Securities, Credit Suisse and Morgan Stanley — should bear that in mind. For one, the deal is a rare event because few technology companies venture into the city’s primary market and it could be the largest float from a tech firm in Hong Kong since Alibaba.com listed for HK$13.1bn in October 2007, Dealogic data shows.
Some cynics say that no one deal can be market changing by itself and granted, getting a single tech company to list is not going to automatically turn the city into a hub for the sector.
But Hong Kong is a market with just a handful of noteworthy tech stocks, so snagging Meitu sends a sign it’s heading in the right direction. Meitu’s success is critical. It could very well be the kick the city needs and end up laying the groundwork for other tech and new economy firms to follow.
Jack Ma summed up the situation in his recent comment in the South China Morning Post — Hong Kong’s stock market is designed for old economy business and is not welcoming of start-ups and other new economy companies.