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China Huarong faces tough IPO competition

By NexChange
Asset Management

China’s biggest player in the distressed-asset space might need some de-stressing on the road to its long-awaited Hong Kong IPO.

The Nikkei Asian Review reports that China Huarong’s upcoming $2.5 billion offering might not be the blockbuster it was cracked up to be, largely thanks to a slew of behemoths IPOs scheduled around the same time:
“Alvin Cheung Chi-wan, associate director at Prudential Brokerage, expressed doubt that investors can digest a multibillion Huarong IPO. He said that there would be competition for investors' money as there is a swollen pipeline of big IPOs due to come in October, including that of Chinese International Capital Corp, an investment bank looking to raise about $1 billion.”
Aside from the CICC, China Re – the region’s largest reinsurer – is also set to sell 5.77 billion of its shares this month.

Further complicating matters for Huarong is its valuation. Analysts currently peg the asset manager’s shares at around 1.2 times book value, a decent estimate whichever way you look at it, save for the fact that Cinda – its closest rival – currently trades below book value.

And that’s not all, state-owned enterprises apparently aren’t allowed to sell below book, giving its advisers – Goldman, CICC, HSBC, just to name a few – with very few options left to fulfill their duties.

Still, it isn’t all bad news. Being a state-owned enterprise still brings the cache of being backed by Beijing, not to mention a rep that these shares are off-limits to short-term speculation. And that alone should help it attract more than a few investors.
Photo: See-ming Lee

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