The lock-up period for shares held by cornerstone investors in China Tower, the world’s largest telecoms tower operator, expired on Friday. The Beijing-based company listed in Hong Kong for HK$54.3 billion (US$6.9 billion) in August, making it the city’s largest initial public offering in 2018.
Its 10 cornerstone investors, which include Hillhouse Capital, Och-Ziff Capital Management Group and Alibaba Group Holding, which owns the South China Morning Post, bought a combined US$1.4 billion worth of shares during its flotation, according to Bloomberg.
With these investors now able to sell their stock holdings, China Tower’s shares rose by 1.25 per cent to HK$1.62 on Friday. The company is expected to benefit from 5G.
“The buying interest of the stock is still quite substantial because the market expects that after 5G starts, the most beneficial stock will be China Tower,” said Kenny Tang, chief executive of China Hong Kong Capital Asset Management.
And while many stocks that were floated in Hong Kong last year have performed poorly, companies such as China Tower, which have better prospects, can expect to do better.
Tang said that although China Tower had risen by about 30 per cent over its listing price of HK$1.26, its valuation remained lower than that of its competitors in the United States.
The stock was trading at about 20 times its valuation, which made it attractive in comparison with its US peers, which were averaging at about 25 times their valuation, he added.
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China Tower shares worth a total of HK$2.4 billion were offloaded in pre-market open cross trading on Friday, showing strong demand that excluded the need to trade in the open market, said Tang.
This buying interest is down to 5G stocks being the current growth story in China, he said. Other telecoms stocks also rose on Friday.
Comba Telecommunications Systems Holdings rose by 7.3 per cent to HK$1.91, while China Communications Services Corporation rose by 4.97 per cent to HK$7.82.
The market expects that after 5G starts, the most beneficial stock will be China Tower
Kenny Tang, chief executive, China Hong Kong Capital Asset Management
Stocks that have performed poorly will lead to sell-offs. For instance, shares in Chinese smartphone giant Xiaomi, which raised HK$37 billion (US$4.7 billion) in Hong Kong’s second-largest IPO last year, saw a wave of selling in January.
Investors were keen to rid themselves of the stock because of its high valuation, lacklustre performance after listing and uncertainty over its prospects.
Hong Kong was the busiest IPO market in the world last year, accounting for 17.6 per cent of listings globally. About 125 companies raised US$36.5 billion in the city in 2018, according to Refinitiv.
And, according to Bloomberg, the IPO lock-up period at more than 50 companies is set to expire in the first quarter of 2019.
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These firms include Haidilao, China’s biggest hotpot chain restaurant, which has US$375 million worth of shares held by cornerstone investors.
Its lock-up period ends on March 26. Shares held by cornerstone investors in Tencent-backed Chinese food delivery giant Meituan Dianping become available on March 20.
Their stock performance will depend on valuations and prospects, said Tang. “It should depend on the prospects of the stock,” he said.
“If it is trading at a high valuation and prospects are not so good, then it will face pressure [to sell] because most cornerstone investors will want to make a profit. They will want to cut losses if the prospects are not good.”
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