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HONG KONG: China’s first internet-only insurer has raised US$1.5bil in a Hong Kong listing, according to IFR. ZhongAn’s status as a rare growth stock with big-name backers helped, as did expectations tech-hungry Chinese retail investors could soon buy in. Living up to a lofty valuation will be a challenge.
This was a blowout deal. Retail investors placed orders for nearly 400 times the shares they were initially offered, while the institutional book was more than 10 times oversubscribed, IFR said. The deal priced at the top of its range. That is partly thanks to ZhongAn’s own attractions but the listing also pushed a lot of other buttons.
Most obviously, this is a great time for a company like ZhongAn to go public. Chinese technology stocks have soared this year. And Hong Kong has been starved of new tech issues: none of the 20 biggest IPOs in the last five years have been in the sector, Thomson Reuters data shows.
Moreover, demand was boosted by expectations the shares will be added to the Stock Connect scheme, which allows Chinese investors to buy into Hong Kong via mainland stock exchanges. Mainland markets are skewed towards individual investors who like familiar names and concept stocks promising rapid growth – both categories that apply to ZhongAn.
Finally, ZhongAn has powerful friends. It was founded by the chairmen of internet giants Alibaba, Tencent and Ping An, the insurer. SoftBank, the Japanese group run by Alibaba Chairman Jack Ma’s friend Masayoshi Son, gave a powerful endorsement by buying roughly one-third of the offering.
Still, a market valuation of about US$11bil is toppy. That is about halfway along the pre-deal valuation range of US$9.3bil to US$12.9bil calculated by UBS analysts - which they said equated to roughly 41 to 50 times 2019 earnings.
That is far higher than typical insurers or even mature tech companies. And yet, the partners that ZhongAn depends on could easily go it alone, and China’s traditional insurers are also world-class in using new technology. ZhongAn will have to stay ahead of the curve to sustain the initial euphoria.- Reuters
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