Nongfu Spring soars in HK debut as investors bet on China’s consumption power
Nongfu Spring soars in HK debut as investors bet on consumption power
Published: Sep 08, 2020 09:18 PM

A worker in a Nongfu Spring facility in Hangzhou, East China's Zhejiang Province in February 2020 Photo: cnsphoto

Investors welcomed Chinese bottled water giant Nongfu Spring's debut at the  Hong Kong stock market, with its shares rising about 80 percent at the opening and closing more than 50 percent higher, as investors bet on China's burgeoning consumption market. 

Shares of the Hangzhou-based company opened 85.3 percent above the IPO price on Tuesday, the first day of trading. At the close, the price was HK$33.1 ($4.27), up 53.95 percent, pushing its market valuation to more than HK$370 billion. 

Nongfu priced its IPO at HK$21.5 to raise about HK$8.4 billion. The funds raised in the IPO will go to brand building and equipment purchases. 

The market response to Nongfu's IPO was overwhelming. According to public information released by the Hong Kong exchange, the shares were heavily sought, with the retail component about 1,148 times over-subscribed. 

Leading global investment institutions reportedly competed to buy the shares. New York hedge fund Coatue, Singaporean fund GIC and ORIX Group, a financial services corporation in Japan, were among the five cornerstone investors in Nongfu Spring's IPO.

The hot market response to Nongfu's IPO is another sign that the Hong Kong capital market is roaring ahead with the help of Chinese mainland commercial giants, after the IPOs of Chinese mammoths like Alibaba and on the Hong Kong bourse set off similar trading frenzies.

It also shows global investors' confidence in China's market, which has huge potential despite disruptions like the coronavirus pandemic. 

"Overseas investors are clear that China's huge consumer market can't be replaced, with its 1.4-billion population base. Besides, a sizable portion of the population is middle class, and this buying power means that China's consumption market can still expand," Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times on Tuesday. 

He added that as the pandemic spreads in the world, Chinese companies have become something of a "safe haven" for overseas investments.

Thomas Yeung, vice dean of the Futian School of Finance and an economist in Hong Kong, told the Global Times that overseas capital is "looking for a way out" as the US dollar has weakened, and companies like Nongfu, which is highly profitable, will surely be of great interest to fund managers. 

Nongfu Spring had a net profit margin of 20.6 percent in 2019, compared with the single-digit profit rate of the overall soft drink industry, according to statistics provided by Nongfu. 

"Overseas investors can rest assured that China's consumption market is strong and self-sufficient," Yeung said, adding that investors are trying to buy into Chinese corporate consumption mammoths to benefit from the nation's consumption boom, as they often find it difficult for their own brands to compete with domestic ones in the Chinese market.

Experts also noted that Nongfu might pursue mergers and acquisitions abroad in the coming months. 

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