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Saturday, 24 August 2019

Hong Kong Equity Issue

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The HK$3.8bn (US$485m) IPO of Innovent Biologics proved Hong Kong could support major listings of pre-revenue biotech companies. Although not the first – or the largest – its flawless debut revived the stock exchange’s efforts to create a sustainable new sector.

Hong Kong Exchanges and Clearing in April introduced new rules to allow the listing of dual-class shares and pre-revenue biotech companies with at least one product beyond the concept stage.

Fourteen, mainly Chinese, biotech companies rapidly filed for a Hong Kong listing. The first few deals, however, were disappointing, casting doubts on the city’s nascent effort to become a biotech listing hub.

By November 15, shares of Ascletis Pharma, the first such listing under the new rules, had tumbled 42% since their August 1 debut. Hua Medicine and BeiGene, the other two newly listed biotech firms in Hong Kong, were 7.1% and 29% below their IPO prices, respectively.

Temasek-backed Innovent, an anti-cancer drug developer with four antibody products in late-stage clinical trials, was the fourth biotech listing in the city. The offering was closely watched as another failed listing would likely shut the market.

To raise chances of success, Innovent secured 10 cornerstones investors for a total of US$245m, or 58%, of the float. Singaporean state fund Temasek, an existing shareholder, invested a further US$20m in the IPO. Other cornerstone investors included US venture capital firm Sequoia, Capital Group, Value Partners and Vivo Capital.

The company also set a realistic valuation target, of about US$2.1bn at the top of the HK$12.50–$14.00 price range. That was much lower than the fair value guidance of up to US$3.8bn from one of the IPO sponsors during pre-marketing.

Books, excluding the cornerstone tranche, were more than 10 times covered. Despite the overwhelming demand, the company priced the offer slightly off the top at HK$13.98 per share to raise HK$3.3bn, clearly with an eye on secondary performance.

About 90% of the shares were allocated to long-only funds and healthcare specialists, 8% to hedge funds and 2% to others.

The stellar aftermarket trading performance of Innovent threw a lifeline to biotech listing hopefuls, raising investors’ confidence in the sector.

The company ended its first day of trading on October 31 with a 19% gain to HK$16.58. The stock hit an all-time high of HK$22.70 on November 15, 62% above the issue price.

A 15% greenshoe was subsequently fully exercised, raising an additional HK$496m for the issuer.

China Merchants Securities, Goldman Sachs, JP Morgan and Morgan Stanley were joint sponsors. The four banks were also joint global coordinators with Huatai Financial and HSBC was a joint bookrunner.

To see the digital version of this review, please click here .

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com .

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