Chinese pearl milk tea chain enterprise “ChaPanda” went public with an IPO in Hong Kong on Tuesday, April 23. However, the stock plummeted more than 38% during the trading session, indicating the challenges Hong Kong faces in restoring investor confidence.
Finance is one of the four major industries in Hong Kong, and in 2019, it ranked first globally in fundraising. Nevertheless, as the market loses momentum, the number of IPOs in Hong Kong has been dwindling. The fundraising amount for Hong Kong’s IPOs has been declining for four consecutive years, marking the longest continuous downturn since 1969. In 2023, the fundraising for Hong Kong IPOs dropped to the lowest level in 20 years.
This trend seems to be just the beginning. Deloitte, the international accounting firm, reported that in the first quarter of 2024, the fundraising amount for new stocks listed on the Hong Kong Stock Exchange fell to 4.7 billion Hong Kong dollars, dropping from the fifth to the tenth position globally.
In terms of sales, ChaPanda is the third-largest ready-to-drink tea company in China. The IPO price of ChaPanda was set at HK$17.50 per share, raising approximately HK$2.59 billion (around US$331 million), making it the largest IPO in Hong Kong this year.
However, the stock opened below the IPO price at just HK$15.74 per share, plummeting over 38% at one point during trading. It closed at HK$11.34 in the morning, down 35%. By 2:14 pm local time, the stock had dropped by 30.74%, settling at HK$12.12.
Analysts attribute ChaPanda’s first-day stock price collapse to intensifying competition in the Chinese tea beverage market and wavering consumer confidence.
Ada Li, the Asia Pacific consumer goods analyst at Bloomberg Intelligence, stated, “Competition in China’s ready-to-drink tea beverage market is fierce and fragmented, with increasing pressure on selling prices and higher input costs.”
“In the midst of economic uncertainty and an ongoing real estate crisis, Chinese consumers have been tightening their belts,” she added.
The sharp decline in ChaPanda’s stock price may affect the decision-making of other tea chain operators looking to expand into the market by issuing new stocks. These companies include Hunan Tea Joy Cultural Industry Development Group (“Tea Yan Yuesè”) and the Meixue Group (“Meixue Ice City”).
Apart from ChaPanda, Tianjin Jianfa, which provides engineering services, also went public in Hong Kong on Tuesday. Tianjin Jianfa raised nearly $20 million in its IPO, but its stock opened below the IPO price at HK$1.88, a 24.8% discount. The stock price dropped by almost 30% during trading.
It is customary for newly listed companies to field questions from the media. However, despite both chairmen being present, neither of these two companies held a media briefing after going public.
The weak performance of Tianjin Jianfa and ChaPanda in their IPOs may further strain the fragile market in Hong Kong.
Last month, Alibaba Group scrapped the IPO plans for its logistics company “Cainiao” in Hong Kong due to unfavorable market conditions. At the same time, companies like Samsonite and L’Occitane are considering delisting from the Hong Kong Stock Exchange due to lower valuations.