(Bloomberg) -- Shares of Chinese appliance maker Midea Group Co. rose in their debut after Hong Kong’s biggest listing in three years, reviving hopes of a turnaround for the city’s struggling market.
The stock jumped almost 8% from its issue price of HK$54.80 to finish the first trading session at HK$59.10. The Foshan, China-based company’s offering was priced at the top of its marketed range and upsized to raise $4 billion — making it Hong Kong’s biggest since Kuaishou Technology’s offering in early 2021.
The market had been pinning hopes on the much-feted deal after IPO volumes in Hong Kong slumped in recent years against the backdrop of China’s economic struggles. Subscription levels for China’s largest appliance maker, whose brands include Comfee and Eureka, showed sizable demand still exists in the city for stocks with established business lines — and offered a glimmer of hope for investor confidence.
“If this manages to hold on to gains for the week, it would definitely create a better IPO environment, paving the way for more to come,” said Benjamin Wong, chief investment officer at Rockpool Capital Ltd., a Hong Kong-based wealth management firm.
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Midea sold 566 million shares after exercising an option to boost the size of the offering by 15% due to demand, it said. The international portion, which represents 95% of the offer, was subscribed more than eight times before taking into account the offer size adjustment option, it said in a filing.
The listing, along with China’s vow to encourage the nation’s leading companies to sell shares in Hong Kong, could engender momentum for the city’s market looking for more deals.
The initial public offerings currently in the works, such as that of China Resources Holdings Co.’s beverage unit, could further gain support, according to a note by Bloomberg Intelligence analysts Ada Li and Joyce Ho. China Resources Beverage Holdings Co. had met some resistance to its $6 billion valuation target, Bloomberg News reported in August.
Other Hong Kong share-sale deals in the pipeline include: ride-hailing company Didi Global Inc., which was forced to delist from the New York Stock Exchange by Chinese authorities; and Shenzhen-traded express-delivery company S.F. Holding Co.
Midea, whose shares are already traded in Shenzhen, sells air conditioners, washing machines, elevators and other products. Some of the proceeds from the latest share sale would be used to expand its global distribution channels and sales network to boost overseas sales, it said.
Its Hong Kong debut may be arriving at an opportune time for the company. Home appliances are Citi’s most preferred sector among China’s consumer discretionary industries in the second half of this year given “higher earnings visibility,” Citigroup Inc. analysts Xiaopo Wei and Vincent Young wrote in a note.
Second-half sales growth could accelerate as the Chinese government continues to promote its “trade-in” policy, in which consumers and businesses are encouraged to upgrade existing appliances and equipment. “We expect the ‘Trade-in’ policy to cover all China provinces by October,” the Citi analysts wrote in another note.
Midea’s listing has pushed Hong Kong IPO proceeds to $6.5 billion this year, more than the total volume in all of 2023 but below bumper levels in past years, according to data compiled by Bloomberg. IPOs in the Asian financial hub before Midea’s debut generated an average 2.1% gain on their first day of trading this year.
The listing’s cornerstone investors — who generally commit to keeping shares for at least six months — have agreed to buy $1.26 billion of its stock. They include a subsidiary of container-shipping company Cosco Shipping Holdings Co. and a unit of UBS Asset Management AG.
Midea offered a roughly 20% valuation discount to its stock price in Shenzhen before the deal launched. After the debut in Hong Kong, the deal size could be increased to $4.6 billion later if an overallotment option is exercised.
(Updates with closing levels.)
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