Demand for shares in a famous Chinese bottled water company outstripped supply by more than 1,000 times ahead of their Hong Kong debut, underscoring surging appetite for new stock offerings in the city.
Retail traders flocked to Nongfu Spring, whose red-capped plastic bottles are ubiquitous at formal gatherings in China, helping it to raise more than $1bn in its initial public offering. More than 700,000 mom-and-pop investors committed HK$670.8bn (US$86bn) for the retail portion of Nongfu’s share offering, making it 1,148 times oversubscribed.
“It’s a very, very well-known brand in China,” said Sumeet Singh, head of research, IPOs and placements at Aequitas Research. Mr Singh, who writes for the Smartkarma research platform, compared its position in China to that of Coca-Cola in the US. Retail investors “know it’s a big 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 hit Rmb201.7bn ($29.5bn) last year. Of that, Nongfu was the largest player with a more than 20 per cent share. The market is expected to grow by an average of 11 per cent a year between now and 2024.
“It has no peers and from a consumption point of view, it’s largely impervious and ringfenced from global shocks to the system,” said Andy Maynard, a trader at China Renaissance, 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 $18.9bn, according to Bloomberg data.
Mr Zhong holds more than 87 per cent of Nongfu’s share capital. He also owns 75 per cent of Beijing Wantai Biological Pharmacy Enterprise, a maker of Covid-19 test kits, whose shares have jumped more than 2,100 per cent since their Shanghai market debut in April.
Traders said well-known cornerstone investors, which agree to buy and hold shares for a set period, also helped boost retail demand for Nongfu shares. US fund manager Fidelity and Singapore wealth fund GIC have snapped up almost 30 per cent of Nongfu’s offering.
Brokers in Hong Kong pointed out that retail orders for Nongfu’s shares were a record, besting the more than HK$530bn thrown at China Railway Construction Corp’s $5.4bn 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 mom-and-pop investors prompted investment bankers to increase the offering’s retail tranche from 7 per cent to 27 per cent.
The flurry of orders for Nongfu shares comes as Chinese companies have raised billions of dollars from stock sales 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 $30bn worth of shares across Hong Kong and Shanghai this year in what could be the world’s biggest ever IPO.
Andrew Sullivan, a Hong Kong-based stock broker, said demand for IPOs in the city was also being fuelled by ultra-low interest rates. “When you’re getting no interest at the bank you might as well have a punt at it,” he said.
Nongfu’s shares are set to debut in Hong Kong on Tuesday.
