Retail investors were among those who were attracted to the Hong Kong initial public offering (IPO) of Chinese pork producer WH Group on Tuesday, July 29. WH raised $2.05 billion in its second attempt at IPO, reported The Wall Street Journal.
Although WH reserved 5 per cent of the IPO for retail investors, subscriptions exceeded by 55 times making WH increase the retail tranche to 10 per cent. The 80 cents or HK$ 6.20 fixed IPO price attracted retail investors.
WH sold 2.57 billion shares. It lowered the institutional tranche to 90 per cent from the initial 95 per cent but it still received from institutional investors thrice the subscription for the offer.
Given the attractiveness of the stock, WH has the option to share more sales and increase the size to $2.36 billion. The company initially targeted to raise $5.3 billion in April, but investors shied away from that first offer due to its high valuation, according to Reuters.
Besides the high valuation in April, investors were turned off then by mismanaged marketing after WH hired 29 banks for the offering and the excessively high executive compensation for company officials. It lowered the valuation but ended up scrapping the first IPO plan.
With the second IPO, WH limited the banks to just two - BOC International and Morgan Stanley.
In 2013, the WH Group bought the U.S. company Smithfield Foods for $4.9 billion. The initial $5.3 billion IPO was aimed at paying off the debt incurred in the acquisition.
This is the second-biggest IPO in Hong Kong for 2014 after HK Electric Investments raise $3.11 billion in its January IPO.
Another IPO to watch is the mega Alibaba IPO in New York, expected to raise $20 billion.
These developments indicate that 2014 is a year for IPOs by giant Chinese companies. However, market observers such as the Web site Valuewalk point out that buying shares at IPOs carry a risk due to lack of historical data to assess the company.
Retail investors interested in shares of Alibaba or WH could study the risk model created by experts like Valuewalk. They could also search for analysts' recommendations.
However, retail investors are cautioned from purchasing shares of WH Group on the news of IPO opening day strong showing. According to Money Morning, "Big first-day 'pops' for stocks are common among companies that have just completed an initial public offering."
Dr. Joseph Louro, chief executive officer of InvestView, recommended that retail investors go beyond first-day IPO performance in evaluating what stocks to buy. He advocated that investors, especially the new ones, to acquire investment education - which involves looking at a company fundamentals, its stock performance, balance sheet and other available information - to help them make informed decisions when making investment decisions.
InvestView (OTCQB: INVU), a Red Bank, New Jersey-based company, has made it the firm's mission to make available to the public products that would help individual investors find, analyze, track and manage their portfolio.
Combining the knowledge gained from online investment education and analysts advise would be of big help for retail investors in helping validate analysts' views, Louro said.
Investors who would use InvestView resources would receive subscription-based financial education courses delivered through the company's web site.
Investview also has web-based tools designed to simplify stock research and improve the investor's research efficiency. Among such tools is Market Point, made up of Charts, Stock Watch, Market, Calendar and Campus.