HONG KONG: A new round of IPO frenzy is gearing up on the local stock market as companies rush to take advantage of the buoyant sentiment, with five firms planning to raise up to an aggregate HK$6 billion over the next month.

Bawang International Ltd, the mainland's fourth-largest shampoo producer and retailer, plans to raise up to HK$1.95 billion in an IPO arranged by Morgan Stanley and HSBC.

The company is selling 700 million new shares or 25 percent of its enlarged share capital and has granted bookrunners an option to sell an additional 105 million new shares in case of strong market response.

Another listing candidate, China Metal Recycling (Holdings) Ltd, is seeking as much as HK$1.55 billion new capital from investors.

The country's largest recycler of scrap metal plans to offer 300 million new shares at HK$3.98 to HK$5.18 each, according to a sale document.

Meanwhile, mainland-based sportswear maker 360 (China) Co Ltd plans to raise HK$1.56 billion while Hong Kong-funded furniture maker Hing Lee Group plans to sell less than HK$100 million worth of shares, according to sources.

Caution

However, market players warn individual investors against being too aggressive in placing their orders for new listing candidates as the current buoyant market sentiment could reverse during the long IPO processes.

"The inflow of hot money, which has been supporting the current market rally, has significantly eased since late last month. This is a negative factor for the prospects of the share market," said Dickie Wong, research director at Kingston Securities Ltd.

He noted that the Hong Kong Monetary Authority, the city's de facto central bank, hasn't bought any dollars to defend the currency peg since May 19, signaling that the capital inflow has eased.

He advises investors to avoid listing candidates that price their IPO shares too aggressively.

"An aggressive pricing strategy will leave little room for the share price to rise, particularly if sentiment reverses," Wong said.

Thomas Ng, investment strategist at Quam Securities Co Ltd, also cautioned investors about the potential reversal of capital flows.

"The US dollar is regaining its strength while yields of US treasury bonds are rising. This could signal a potential reversal of capital flow," he said.

The strengthening US dollar could trigger an unwinding in dollar carry trades, he said.

He explained that a large portion of the recent capital inflows were from institutions who had borrowed cheap US dollars amid Washington's quantitative-easing.

As a result of market players' cautious attitude towards the IPO market, listing candidate Lumena Resources Corp has so far received a lukewarm response from retail investors after it launched its IPO last Thursday.

Sichuan-based Lumena,the world's second-largest producer of the mineral thenardite, expects to raise up to HK$1.48 billion by selling 577 million shares. Credit Suisse, Macquarie and BOCI are handling the sale.

(HK Edition 06/09/2009 page4)