17 October 2018
China Literature Co-CEOs Liang Xiaodong (L) and Wu Wenhui make a toast during the debut of the company at the Hong Kong Stock Exchange on Wednesday. Photo: Reuters
China Literature Co-CEOs Liang Xiaodong (L) and Wu Wenhui make a toast during the debut of the company at the Hong Kong Stock Exchange on Wednesday. Photo: Reuters

China Literature’s stellar debut boosts outlook for HK tech IPOs

The smashing success of Tencent’s e-book unit China Literature (00772.HK), which saw its shares surge more than 80 percent on their first day of trading on Wednesday, is expected to encourage more technology firms to list on the Hong Kong Stock Exchange.

China Literature shares closed at HK$102.4 on their debut, up 86.2 percent from the initial public offering price of HK$55, after soaring to as much as HK$110 in early trade.

It marked the biggest first-day gain for a large IPO globally this year as Hong Kong investors embraced the tech listing.

The stunning debut has shown that Hong Kong has raised its game as it strives to compete with the New York and Nasdaq exchanges, the more traditional home for Chinese tech IPOs seeking to attract international investors, Reuters noted.

Before China Literature, the biggest first-day pops of the year belonged to Snap, the US social media platform, and Shanghai-listed Caitong Securities.

Each gained 44 percent on debut, according to Thomson Reuters data on firms that raised more than US$500 million.

China Literature is trading at 197 times its forecast 2017 earnings and 79 times its 2018 projections. In comparison, parent company Tencent is trading at 51 times its 2017 forecast profits.

Co-CEO Liang Xiaodong told reporters after the opening bell ceremony that the stock’s surge was a pleasant surprise.

“Going forward, we will conduct M&As and forge strategic alliances … in a bid to stay ahead in our industry,” he said.

China’s biggest e-book platform offers 9.6 million literary works from 6.4 million authors. 

Demand for the IPO, which raised US$1.1 billion, was such that retail investors bid for 625 times the shares on offer, tying up HK$521 billion, equivalent to a fifth of Hong Kong’s cash in circulation, Reuters noted.

China Literature’s IPO success comes as the number of tech offerings in Hong Kong is picking up.

Online insurance group ZhongAn raised US$1.5 billion in September in Asia’s biggest-ever financial technology IPO. Its shares jumped 18 percent in their debut.

“Our team expects to see an increasing number of technology-related issuers in the coming months,” Amy Lo, a partner at Clifford Chance, adviser to China Literature’s underwriters, said in a statement.

Razer Inc (1337.HK), a gaming hardware maker backed by Hong Kong billionaire Li Ka-shing, will make its Hong Kong debut next Monday. 

“(ZhongAn) gave people size and returns, so retail and high net worth individuals got excited. And that is being reflected in China Literature and Razer,” a banker involved in the China Literature deal told Reuters.

But even so, for many Chinese tech firms, the US market remains more attractive.

Sogou Inc, China’s second-largest search engine and 45 percent owned by Tencent, is due to begin trading on the New York Stock Exchange on Thursday after an IPO worth up to US$585 million.

Tencent owns 62 percent of China Literature, while Carlyle Group holds 12.2 percent. A further 6 percent is owned by Trustbridge Partners, which was founded by Shujun Li, the former CFO of Shanda Interactive.

“As the first Tencent-controlled subsidiary tapping capital markets, China Literature has to perform well in the secondary market to set a good example…,” an institutional investor who took part in the IPO told Reuters.

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