The share-price drop in Maoye International Holdings following its IPO may further cool down interest in small- to mid-sized IPOs. China Daily

The disappointing debut of Chinese retailer Maoye International Holdings, whose shares fell 1.9 percent from their offering price, may put pressure on upcoming initial public offerings (IPOs).

Maoye, which raised $343 million in its scaled-back IPO, dropped as much as 6 percent yesterday before closing at HK$3.04, down 1.9 percent from the offering price of HK$3.10.

Maoye is the first listing since the market started recovering from its plunge in March that forced several companies to delay or scale down their Hong Kong IPOs.

The retailer had hoped to raise up to $905 million before withdrawing a planned listing amid poor market conditions earlier this year.

"The poor performance is likely to affect the subscription of upcoming IPOs, as they are mostly small- to medium-sized companies," said Cornita Hung, head of equity markets for the Delta Asia Financial Group. "Investors are still quite selective of IPOs, despite their low valuations."

The retailer priced its 863 million shares low. It is 1.67 times subscribed in the retail tranche.

Goldman Sachs, UBS and HSBC arranged the deal.

Maoye International operates 15 stores across eight cities in southern and southwestern China, including Shenzhen, Zhuhai and Chongqing.

Most of the IPO proceeds will be used to finance the expansion of its outlets network, as well as for potential acquisitions of department stores or premises.

"Given the disappointing performances of recent IPOs, investors may choose to buy shares in the secondary market rather than subscribe to new shares, even if they are interested in holding the stock," Hung said.

Mainland retail stocks, popular among Hong Kong investors, are trading at high valuations as the industry is expected to benefit from the booming economy, the government's policy to drive the domestic economy and the approaching Olympic Games.

"Under the volatile market conditions, a concept is not enough to drive investors," Hung said. "The quality of individual companies will be key."

However, an investment banker from Maoye's sponsor said the closing price is within the expected range and noted that other IPOs recently lost much more upon their debuts.

Therefore, he believes that the company's debut won't have a big impact on other IPOs, as all the recent new listings have had similar performances.

He said the valuation of upcoming IPOs will continue to be conservative, but their debut performances will only be one of the criteria to make the pricing decisions. However, share prices will be buoyed by the underwriters, he added.

(HK Edition 05/06/2008 page2)