HONG KONG, Sept 12 (Askume Breakingviews) – After years of declining revenue, some deal-hungry Hong Kong investment bankers are refusing to take a break from a block sale of shares in electronics maker Midea Group (000333.SZ) this week. They won’t do it . The company has priced its shares at the top of a set range and the deal size is expected to rise to $3.9 billion due to strong demand from institutional investors, Askume reported.
The amount would exceed the $2.5 billion raised across all Hong Kong listings so far this year, Dealogic said. It was also the city’s biggest listing in more than three years, and the timing seemed perfect as the globally diversified, mainland-listed retailer reported a 14% profit rise in the first half with record revenue of nearly 21 billion yuan.
This helps explain why Midea does not need to offer a huge discount on its Shenzhen shares. The Hang Seng Stock Connect China AH Share Premium Index (.HSCAHPI) for dual-listed companies currently stands at 150, with 100 indicating parity between the Hong Kong H shares and the mainland A Share Premium Index. This means the financial hub’s shares are trading at an average 33% discount to Shanghai or Shenzhen shares. By comparison, Midea offered a discount of up to 21% to the company’s domestic close on Tuesday.
It is true that Midea is facing the dilemma of sluggish consumption in the domestic market, and the national consumer goods trade plan announced in March may affect the company’s sales in the first half of the year. Official data showed that sales of home appliances and electronic products increased by about 13% year-on-year in May, but declined in both June and July, indicating that the plan will help stimulate continued improvement rather than giving up on future sales.
Fortunately, Midea has made good progress overseas, and more than 40% of its revenue will come from overseas markets in 2023. According to LSEG, annual revenue is expected to grow by a good 10% over the next three years. The company’s Chinese roots and limited offshore manufacturing capabilities make it vulnerable to potential trade tariffs. No wonder it plans to spend more than a third of its listing proceeds on promoting overseas business.
Buyers of all kinds seem to prefer this strategy. Hong Kong brokers told Breakingviews that local retail investors have shown strong interest. Bloomberg reported on Wednesday that Hillhouse Investment Corp., known for its long-term bets on Chinese technology and consumer goods, and Singapore sovereign fund GIC are also in talks to buy shares worth $1 billion and $500 million, respectively. A well-run global Chinese company can still attract investor interest. How many other Chinese companies can boast a similar track record is another question.
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Chinese home appliance maker Midea Group will price its shares at the top of an indicative price range when it lists in Hong Kong, Askume reported on Sept. 11, citing four people with direct knowledge of the matter.
The Shenzhen-listed company plans to raise up to HK$27 billion ($3.5 billion), with an option to increase the deal size to $3.98 billion if demand is strong.
IFR reported that the deal was completed the previous day, September 11. The deal has 18 cornerstone investors with a total investment of $1.3 billion, representing about 37% of the offering and the mid-range of the offering price range.
