HONG KONG (Nikkei Markets) -- ESR Cayman's decision to postpone its $1.24 billion initial public offering reflects growing challenges facing Hong Kong's primary market as political uncertainty adds to worries over the Sino-American trade war, say analysts.
The Warburg Pincus-backed property developer cited "current market conditions" for the decision to not proceed at this time with its IPO, which would have been Hong Kong's biggest so far in 2019. Market participants said the company may be waiting for better conditions to raise such a large amount at the valuation it was seeking.
"The market sentiment is definitely not favourable to new IPOs. Only those companies that need money urgently will proceed with whatever price," said Kevin Leung, director of global investment strategy at Haitong International Securities.
With subscriptions by retail investors "pretty weak" of late, and even institutional investors "barely covering the fundraising amount," smaller IPOs by companies with a capitalization of less than HK$2 billion ($255 million) have a greater chance of success, Leung said.
At the lower end of ESR's indicative IPO price range of HK$16.20-HK$17.40 per share, the stock would have been valued at 25.7 times its reported earnings for 2018. The Hang Seng Property Index of large developers listed in Hong Kong, meanwhile, trades at 7.4 times its earnings.
Several newly listed stocks in Hong Kong, among the world's largest and most active IPO markets, have fared poorly on listing in recent weeks as weak broader market conditions amid the U.S.-China trade war dampened investor enthusiasm.
Tai Hing Group Holdings, the operator of a popular casual-dining restaurant chain, dropped as much as 17% on its trading debut on Thursday while elderly care services provider Kato (Hong Kong) Holdings lost as much as 15%. Both recovered from the day's lows but ended lower - 12% from its listing price in Tai Hing's case, and 6.7% in Kato's case.
The Hang Seng Index, down 2.9% over the past month, ended little changed on Thursday.
Investors have been looking ahead to possible meeting between U.S. President Donald Trump and Chinese President Xi Jinping at a G20 summit later this month in Japan, amid few other signs that the year-long dispute between the two nations is close to a resolution.
Meanwhile, the Hong Kong government's proposal, which would allow people to be extradited from the city to other places including China is stoking further worries. Thousands of residents protested against the bill and clashed with the police on Wednesday, after about a million people participated in a march on Sunday to express their opposition.
Companies that have undergone the various regulatory procedures and are now awaiting listing will "not want to proceed this week" in view of the recent share performances, said Vincent Cheung, managing director at Vincorn Consulting & Appraisal, a financial adviser.
"Financial markets are super sensitive to matters related to politics or the government, and investors do get worried," he said.
Critics of the extradition bill fear that it could be used to extradite citizens, or even employees of international companies, to stand trial in China.
Andrew Sullivan, a director at Pearl Bridge Partners in Hong Kong, said that if the bill was to be enacted, it "might prompt companies to shift headquarters" to places such as Singapore, which also provide access to China, but follow English law.
Still, "I don't think we will see much of a difference from Chinese companies' IPO plans," he said.
Dick Chan, managing director at Marketsense Securities, said that while the protests in Hong Kong may have had some impact on ESR's subscriptions, the weakened investor sentiment was likely to be a short-term event.
"The market will stabilize soon," he said. "There are still lots of companies that would like to be listed in the world's major financial center."
-- Carrie Chen & Amy Lam