QuantumPharm IPO oversubscribed 'by 10 times' as retail investors pile in to Hong Kong's first pre-revenue tech regime listing

Retail investors have rushed to subscribe to Tencent-backed artificial intelligence (AI) drug researcher QuantumPharm on the first day of its HK$1.13 billion (US$144.5 million) initial public offering, encouraged to bet on the technology start-up by recent market rallies and listing reforms.

Several large local brokerages told the Post they have received a strong response from investors, with some expecting the retail tranches to be oversubscribed by about 10 times on day one. Futu Securities estimated total first-day margin lending reached HK$520 million, including HK$321 million worth of subscriptions it received.

Phillip Securities (Hong Kong), a brokerage active in the IPO market, received HK$100 million from its margin-lending clients on Tuesday, while TradeGo Markets pulled in HK$84.6 million.

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Bright Smart Securities, the biggest local broker to offer margin financing for IPOs, also received a good response but did not disclose the number.

It is the first IPO under Chapter 18C, a new regime for pre-revenue specialist technology firms introduced more than a year ago. Chapter 18C allows companies worth at least HK$10 billion to sell IPO shares even if they have yet to earn a single dollar in sales.

QuantumPharm, also known as XtalPi, is based in Shenzhen city, Guangdong province. Photo: SCMP Handout alt=QuantumPharm, also known as XtalPi, is based in Shenzhen city, Guangdong province. Photo: SCMP Handout>

"The performance of recent IPOs may help drum up interest in the new offerings," said Louis Wong, executive director of Phillip Capital Management (Hong Kong). "The subscription will be higher at the end of the week as today is only the first day of the IPO.

"The offering is popular as the government and the stock exchange have been very supportive of the 18C listing regime, and they have made a lot of promotional efforts to encourage technology companies to list in Hong Kong."

The public tranche is around 12 times oversubscribed and the international placement is fully subscribed, according to a source familiar with the matter who declined to be named, citing confidentiality.

This reflects "investors' tendency to keep up with industry hot spots such as AI and robotics and focus on specialised tech sectors," the source said.

QuantumPharm, also known as XtalPi, is selling 187.37 million new shares at HK$5.03 to HK$6.03 each, of which 95 per cent will be set aside for global investors.

The retail portion of 9.37 million shares may be increased to 37.48 million, or 20 per cent of the total offering, depending on public demand and a so-called clawback mechanism. The final price will be set on Friday and the listing will take place on June 13.

Some brokers said local investors are still cautious about investing in IPOs.

"While the stock market sentiment has bounced back and the turnover became more active in recent weeks, there are still a lot of uncertainties such as geopolitical tensions and the delay of an interest rate cut in the US," said Tom Chan Pak-lam, permanent honorary president of the Institute of Securities Dealers.

"Under such circumstances, retail investors tend to take a wait-and-see approach to their investments. It would take time for them to understand the benefit of investing in these companies."

QuantumPharm's offering is looking promising on the international front too. It has already attracted eight cornerstone investors who have put in a combined HK$338 million which, if the deal is priced at the lower end of the pricing range, would represent 36 per cent of the total shares offered.

One of the cornerstones is Successful Lotus, an investment holding company owned by Hong Kong tycoon Peter Lee Ka-kit, chairman of Henderson Land Development. His firm invested HK$40 million in the IPO.

QuantumPharm counts Tencent, HongShan, China Life Insurance, Google and SoftBank Group among its investors.

"We believe our blue-chip shareholder base and prominent customer base is a testament to our capabilities and prospects," the firm wrote in its IPO prospectus.

The company posted an adjusted net loss of 522 million yuan (US$72 million) for 2023, widening from a deficit of 437 million yuan in 2022.

According to the firm's chief financial officer, Ronald Tam Man-hong, cash on hand exceeds 2.8 billion yuan, equivalent to US$390 million. That compared with last year's operating costs of US$90 million.

"After the new stock is listed, cash reserves are expected to last for six years," he said at a media briefing on Monday.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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