Maoyan priced its IPO on Monday. A late addition of cornerstone investors, including smartphone maker Xiaomi Corp, meant bookbuilding was extended by a day and pricing was delayed from the original goal of last week. Was that necessary? Perhaps not. But it was certainly wise.
Maoyan’s fundraising target of between HK$1.96bn-HK$2.7bn would not register as large or daring in a more friendly environment, but Hong Kong’s primary equity market is far from friendly. The HK$1.96bn ($250m) float ended up being the largest in Hong Kong so far this year.
Investors are still roiling from the depressing performance of Hong Kong IPOs in 2018, particularly the losses they endured on a crop of so-called ‘new economy’ companies. Maoyan fits into that category nicely. Although it has an old-fashioned sounding business model — it sells cinema tickets — it operates with typical new economy flair, reaching its customers through partnerships with tech companies including Tencent.
The association with the woes of other new economy stocks meant the inclusion of Xiaomi and other cornerstones was an obvious step to reassure investors, but with Chinese New Year on the horizon the syndicate group did not feel they had time to hang around. They decided that launching the deal on January 18 with just IMAX Hong Kong and Welight Capital as cornerstones was a necessity. The pair were in for $15m and $3m, respectively.
The leads kept up the discussions with other cornerstones, however. They were able to add three more: Xiaomi’s wholly-owned subsidiary Green Better, which took $2.6m, and Hylink Investment and Prestige of the Sun, which came in for $5m and $4.4m apiece. The total cornerstone tranche was $30m.
It is clear that a $2.6m commitment from Xiaomi is not enough to make or break a deal, and indeed the total cornerstone tranche was still not huge. But it sent the right signal to investors. The bookbuild took some time to get going, but the addition of three new cornerstone investors on the second day gave it a boost and consequently the syndicate were able to wrap up the deal on January 25 with a book multiple times subscribed, albeit at the bottom of the range.
Perhaps the biggest downside to extending bookbuilding was that the company had to reschedule its listing for February 4, the day before Chinese New Year, instead of the original plan to float on Friday. Maoyan will debut on one of the quietest trading days in the Hong Kong markets. But that will barely be remembered once the deal has started trading.
Maoyan’s deal offers a few lessons for other Chinese new economy companies hoping to list: be nimble, be willing to offer an attractive price and do everything it takes to get guaranteed demand. In this market, that is not enough to get a blockbuster deal done. But it is enough to survive.