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HONG KONG (Reuters Breakingviews) - Chinese biotech has revitalised Hong Kong's IPO market. Shares of WuXi Biologics popped as much as 39 percent on their debut on Tuesday. High earnings growth and a lack of exciting initial public offerings led to strong demand for the $511 million deal. This is good news for a bourse keen to attract a new breed of entrepreneurs.
WuXi helps pharmaceutical firms research, develop and make new drug therapies called biologics. It priced at the top of the range at a valuation of $3 billion. Demand was so strong that the company turned down cornerstone investors and stopped taking orders earlier than planned. And bankers ended up selling 30 percent of the offering to the city's mom and pop investors - three times the typical allocation for retail buyers, Reuters reported.
The deal is the city's biggest new listing this year, although it is smaller than the $2.1 billion raised by brokerage Guotai Junan Securities, which already had shares trading on the mainland. The other sizeable IPOs in the former British colony this year have been an uninspiring mix of financial, education, and water- and waste-management outfits.
WuXi’s success shows that investors are willing to back fast-growing firms, even if they come with high valuations and novel business models. Earnings at WuXi are expected to top 568 million yuan ($83.6 million) in 2018, up fourfold in two years from an admittedly low base, according to one estimate cited by IFR.
This bodes well for Hong Kong, which wants to diversify away from the stodgy financial, property and industrial groups that dominate the local market. Together, those sectors make up some 60 percent of the Hang Seng Index by market capitalisation. This week, the stock exchange will review proposals for a new board that would allow companies with different voting rights to go public in the city, which is often seen as a way of attracting high-technology firms.
Regardless of the outcome, WuXi's strong debut may be potent enough to trigger a reaction from other healthcare and tech bosses.
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