By Julie Zhu and Jennifer Hughes
HONG KONG (Reuters) - Consumer lender Home Credit is poised to offer the biggest test of Hong Kong's capital markets since China's Alibaba delayed plans for a $15 billion listing last month because of the political turmoil engulfing the city.
The Prague-based lender, which has a sizeable Chinese business, could launch its initial public offering as soon as this month, and is seeking to raise more than $1 billion from the offering in the first of a series of significant IPOs planned in the city.
Hong Kong's markets have been weakened by frequently violent pro-democracy protests and political turmoil over the past three months, slashing a 12% gain for the year to June on the blue-chip Hang Seng Index to a 3% positive performance by Monday. By contrast the benchmark U.S. S&P 500 (SPI) is up 18.8% so far this year.
Police fired tear gas and rubber bullets to disperse demonstrators in the Central business district and the upmarket Causeway Bay shopping district on Sunday, as the city endures its worst social unrest since its handover from British rule to China in 1997.
Last month, Alibaba (N:BABA) dealt the city's investment professionals a blow when it delayed plans for a $15 billion listing in Kong Kong, choosing to hold off until the city's politics and its markets had stabilised, Reuters reported.
That deal delay came soon after brewing giant AB InBev (BR:ABI) pulled the $10 billion IPO of its Asia-Pacific operations, citing market conditions.
Home Credit's forthcoming IPO will be a key gauge of sentiment as typically the last four months of the year are the busiest in Hong Kong for public floats, accounting for an average 51% of the funds raised annually over the past decade, according to Refinitiv data.
Shanghai Henlius Biotech, a developer of innovative drugs and biosimilars - which are not exact replicas but are as effective as the original drug - is also expected to launch an IPO of up to $500 million this week.
Hillhouse-backed Topsports International Holdings begins informal investor meetings this week according to a term sheet reviewed by Reuters, ahead of a float expected to seek about $1 billion.
VALUATION PUSHBACK
So far this year, companies have raised $10.8 billion in new listings in Hong Kong - well short of the $16.5 billion raised between Shanghai and Shenzhen, and the $38.4 billion raised in New York.
The political uncertainty is making investors cautious and will weigh on valuations, bankers have warned.
"In good markets, generally good issuers would have a bigger say in deal terms and valuations, but that's not the case any more as the Hong Kong market has turned volatile," said a banker involved in one of the deals poised to launch. "The upcoming issuers have to be more realistic and moderate on valuations if they want to get the deal done."
Home Credit's week-long informal investor meetings were scheduled to take in cities including Hong Kong, Singapore and London before finishing in New York on Wednesday, according to sources with knowledge of the plans.
The lender, which focuses on point-of-sale loans as well as cash loans and revolving loan products, has an extensive Chinese business that accounts for almost two thirds of its total loan portfolio.
"The business (of Home Credit) is definitely a good one and they have great market position. It's just whether the current market environment can deliver a deal that they think they deserve," said one source with knowledge of the deal.
As well as Home Credit, Shanghai Henlius Biotech and Topsports, Chinese lender Bank of Guizhou began meeting with potential investors last week for an IPO of up to $1 billion, while baby-formula maker China Feihe is due to seek approval on Thursday from Hong Kong's Listing Committee for a float of about the same amount, sources said.
"With all the uncertain, unpredictable factors in mind, investors would become way more cautious about issuers' target valuations," said a banker involved in one of the deals.
Home Credit, Henlius, Topsports, Bank of Guizhou and China Feihe declined to comment. All the people declined to be identified as they were not authorised to speak to the media.