By Alun John and Donny Kwok
HONG KONG (Reuters) - Kuaishou Technology more than doubled in its Hong Kong stock market debut on Friday, becoming the fifth-largest listed company in the city, driven by massive demand from mom-and-pop investors for the Chinese online video service operator.
The debut spike is the second largest on record globally for firms with over $1 billion IPOs, data available on Refinitiv Eikon shows. Analysts say this is encouraging for others looking to raise funds in Hong Kong but that it adds to worries about an asset bubble and risks retail investors are taking.
Kuaishou shares closed at HK$300, valuing the company at HK$1.23 trillion ($159 billion), versus HK$115 apiece in the $5.4 billion IPO. They opened at HK$338 and hit HK$345 earlier. The broader index closed the day with a meagre 0.6% rise.
The float is the biggest in Hong Kong since Budweiser's Asia unit raised $5.75 billion in 2019. Retail investors bid for 1,204 times the amount of Kuaishou shares on offer for them in the IPO, mostly backed by borrowed money.
The Friday pop in Kuaishou shares was driven by demand from customers from mainland China, who cannot invest in IPOs in Hong Kong but can buy in the secondary market if they have brokerage accounts in the city, said Louis Tse, managing director of brokerage Wealthy Securities.
Retail investors in Hong Kong who failed to get shares in the IPO also piled in, Tse said, adding there was a lot of pent-up demand after the last-minute suspension of Ant Group's blockbuster $37 billion dual-listing in November.
"This bodes well for other Hong Kong IPOs, if the companies are well known on the mainland," Tse said.
TikTok-owner Bytedance has been considering listing its onshore Chinese short video app Douyin in Hong Kong, Reuters reported last year.
Douyin and Kuaishou are rivals.
Kuaishou, which is backed by Tencent Holdings (OTC:TCEHY), was the world's No.2 short video platform in the first nine months last year, its IPO prospectus said.
It had an average of 275.9 million daily active users over the period, the prospectus adds, citing iResearch, as the COVID-19 pandemic forced people to spend more time online.
While access to Kuaishou is free, the company makes money through selling virtual items which users gift to the creators of the videos, online marketing and commissions from e-commerce sales on the platform.
The company plans to use the proceeds of the IPO to grow its ecosystem, strengthen research and for selective acquisitions, it said in an exchange filing.
BUBBLE WORRIES
Kuaishou's debut, one of many strong recent floats in the Asian financial hub, however, comes against the backdrop of growing fears about a global asset bubble, with amateur investors boosting the price of assets ranging from cryptocurrencies to new market listings.
"I'm not very familiar with the app to be honest. But I've heard good things about the company, and I know it is backed by Tencent," 67-year-old taxi driver Mars Lau, who bid for shares in the Kuaishou IPO, told Reuters ahead of the listing.
Among other recent floats where shares surged on debut are Smoore International that gained 150% in July last year after it raised $1.1 billion at its IPO.
JD (NASDAQ:JD) Health International Inc gained 56% when it debuted in December after raising about $3.48 billion, and toy maker Pop Mart International Group closed nearly 80% higher on its first day.
A recent sharp rise and fall in U.S. videogame retailer GameStop (NYSE:GME) and some other stocks have put investors on edge and prompted some brokerages globally to raise margin requirements or stop offering leverage for buying securities.
"Kuaishou is definitely a bubble if you look at its forward P/E," said Dickie Wong, executive director of research at Kingston Securities, referring to the price to earnings ratio.
"However, I don't think it will burst like GameStop, there is so much demand," Wong, who owns Kuaishou shares said, citing interest from mainland China and the likelihood of the company being included in Hong Kong indices.
($1 = 7.7526 Hong Kong dollars)