Never has a bottle of water come with so much fizz. Nongfu Spring, a cheap brand ubiquitous in China, is selling shares at HK$21.50 a pop. The retail tranche of the $1bn-plus initial public offering was 1,148 times oversubscribed. That is a record in anyone’s book. Such numbers reflect the mechanics of Chinese IPOs, as well as investor enthusiasm.
Huge excess demand is a regular feature of IPOs in Hong Kong and China. Retail investors there know it gives them a bigger slice of the offering under local rules. The usual 10/90 split between retail and institutional investors is therefore often closer to 30/70. In Nongfu’s case, retail investors secured 27 per cent of the issue.
Investors had to apply for 40,000 Nongfu shares before they even had a whisker of a chance of securing more than 200. Multiple applications persist; Nongfu’s advisers weeded out 1,381 suspected cheats. On top of this, investors appear to bank on implicit support: Team China, in the form of government-aligned investors, swoops in with across-the-board buy orders when the market swoons.