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Demand for shares in a famous Chinese bottled water company outstripped supply by more than 1,000 times before its Hong Kong debut, underscoring the growing appetite for new share offerings in the city.
Retailers flocked to Nongfu Spring, whose red-capped plastic bottles are ubiquitous at formal gatherings in China, helping it raise more than $ 1 billion in its initial public offering. More than 700,000 family investors pledged HK $ 670.8 billion ($ 86 billion) for the retail portion of Nongfu’s share offering, exceeding it in subscriptions 1,148 times.
“It’s a very, very well-known brand in China,” said Sumeet Singh, head of research, IPO and placements at Aequitas Research. Singh, who writes for the Smartkarma research platform, compared his position in China to that of Coca-Cola in the United States. Retail investors “know it’s a great brand, they’ve seen it for 25 years.”
According to research firm Frost & Sullivan, cited in Nongfu’s IPO prospectus, retail sales from China’s bottled water market reached 201.7 billion rupees ($ 29.5 billion) last year. Of that, Nongfu was the biggest player with a stake of more than 20 percent. The market is expected to grow by an average of 11 percent annually between now and 2024.
“It is peerless and from a consumer point of view, it is largely waterproof and protected from global impacts on the system,” Andy Maynard, a China Renaissance trader, said of Nongfu’s position in the Chinese market.
Hangzhou-based Nongfu was founded in 1996 by Zhong Shanshan, a former construction worker and journalist whose fortune is worth $ 18.9 billion, according to Bloomberg data.
Mr. Zhong owns more than 87 percent of Nongfu’s share capital. It also owns 75 percent of Beijing Wantai Biological Pharmacy Enterprise, a maker of Covid-19 test kits, whose shares have risen more than 2,100 percent since its debut in the Shanghai market in April.
Traders said known fundamental investors, who agree to buy and hold shares for a set period, also helped drive retail demand for Nongfu shares. US fund manager Fidelity and Singapore endowment GIC have taken nearly 30 percent of Nongfu’s offer.
Hong Kong brokers noted that retail orders for Nongfu shares were a record, surpassing the more than HK $ 530 billion thrown in China Railway Construction Corp’s $ 5.4 billion IPO in 2008.
In Hong Kong, retail investors are not required to put money up front when they apply for shares in an IPO.
Demand from household investors led investment bankers to increase the retail leg of supply from 7% to 27%.
The flood of orders for Nongfu shares comes as Chinese companies have raised billions of dollars from the sales of shares in Hong Kong this year against a backdrop of tensions between Beijing and Washington.
Ant Group, the Chinese payments business controlled by Alibaba, is expected to sell up to $ 30 billion in shares in Hong Kong and Shanghai this year in what could be the world’s largest initial public offering.
Andrew Sullivan, a Hong Kong-based stockbroker, said demand for IPOs in the city was also being driven by ultra-low interest rates. “When you don’t get any interest in the bank, you better bet it,” he said.
Nongfu shares will debut in Hong Kong on Tuesday.
