Despite tepid response in the current IPO market, mainland digital music provider A8 Digital Music and restaurant chain Little Sheep are likely to have better debut after receiving overwhelming subscriptions and pricing at the middle of their offering range.

The two companies priced less aggressively although they drew significant subscriptions, leaving rooms for an increase on the first day of trading.

Eight out of 12 IPOs have dived below their offering prices since the beginning of this year. AP

"With the small offering size, A8's overwhelming subscription seems to show that there will be some speculation with some big investors," said Ronald Wan, a managing director at BOCOM International, noting that it should have stronger debut without giving a price estimation.

A8 is priced at HK$1.90 each, lower than the middle of the offering range of HK$1.66 to HK$2.38. Meanwhile, Little Sheep is priced at HK$3.18, middle of the offering range of HK$2.68 to HK$3.68, according to sources.

Dick Lee, a corporate finance officer at Philips Securities, is upbeat about Little Sheep's debut as it is one of top restaurant chains on the mainland after McDonald's and KFC.

IPO debuts have been disappointing so far this year. Eight out of 12 IPOs listed on the mainboard dived below offering prices including most recently-listed sportswear retailers Xtep International and Pou Sheng International and Henan-based real estates developer Central China Real Estates.

Yet, A8 Digital Music, which aims to raise up to HK$217 million, received 129 times oversubscriptions in its retail tranche, according to sources. Little Sheep, which plans to raise as much as HK$902 million, has recorded over HK$1 billion margin financing.

The benchmark Hang Seng Index, which closed down 2.86 percent from last Monday's 24,831.36 points after dropping consecutively last Tuesday and Wednesday, did not affect investors' enthusiasm for Little Sheep.

SBI E2 Capital is the sole sponsor of the deal by A8 Digital while Merrill Lynch and Deutsche Bank are jointly arranging the Little Sheep's IPO. Shares of both A8 Digital Music and Little Sheep are expected to start trading on June 12.

However, machine manufacturer Chonqing Machinery and paper manufacturer Chenming Paper, which will start trading on June 13 and June 18 respectively, received modest responses.

Chongqing Machinery is expected to be priced at the lower end of the offering range between HK$1.30 and HK$1.70 while records of margin financing are worse than expected for Chenming Paper.

Meanwhile, Wah Kwong Maritime announced the postponement of its HK$1.25-billion IPO last week due to the market condition, following at least eight other companies that have scrapped or delayed their IPOs.

However, an investment banker at a Europe-based investment bank believes that Wah Kwong's delayed IPO is not likely to affect the listing schedule for other IPOs.

"It depends on whether the listing clients are willing to sell their shares at bigger discounts," he said. "We do not expect IPOs to have similar performance as last year."

"Investment banks will still bring IPOs to the Hong Kong market after the summer break in late June to July," he added.

A few IPO candidates are also planning to be listed in June including CTV Golden Bridge International Media and developer Powerlong Group.

(HK Edition 06/10/2008 page3)