China EV maker seeks $1bn in Hong Kong’s biggest IPO of 2022

Electric vehicle maker Zhejiang Leapmotor Technology is seeking to raise as much as $1bn in what would be Hong Kong’s largest initial public offering this year, in the latest test of investor appetite for China’s fast-growing EV market.

Leapmotor plans to raise as much as HK$8.1bn (US$1bn) from the sale of about 131mn shares in Hong Kong in a range of HK$48-HK$62 each.

The IPO would be the biggest this year in Hong Kong, where only two listings have brought in more than $1bn. However, both were secondary share sales by companies already trading on mainland Chinese exchanges, with battery component supplier Tianqi Lithium raising $1.7bn in July and duty-free retailer China Tourism Duty Free raising $2.1bn last month.

Local brokers said investors remained broadly unenthusiastic about the city’s IPO market, which has remained sluggish over the past year as Beijing has cracked down on fast-growing Chinese internet and technology groups, which were once responsible for most of Hong Kong’s biggest listings.

“The IPO market at the moment in Hong Kong is lukewarm,” said Dickie Wong, head of research at Kingston Securities. Wong said most local investors “are not participating in any IPO subscriptions any more because they can’t make any profits”.

Leapmotor’s push to list this month followed on the heels of an announcement on Monday by Onewo, a subsidiary of property developer China Vanke, which plans to raise as much as $784mn from its own initial public offering. That listing is set to price on Thursday.

As with Onewo, Leapmotor has received substantial support from cornerstone investors. State-run investment funds such as the Jinhua Industrial Fund and Zhejiang Industrial Fund, along with three other cornerstone investors, have pledged to buy about $308mn worth of shares.

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Unlike Onewo, which relies substantially for revenues on China’s beleaguered housing market, Leapmotor’s core electric vehicle business operates in a sector that is widely expected to grow rapidly in the coming years, thanks to strong government support.

However, Kingston Securities’ Wong said investors were less willing to ascribe “sky-high valuations” to Chinese EV makers because of the dominance of existing players such as BYD, known as “China’s Tesla”.

“The industry outlook is quite promising,” Wong said, “but on the other hand, the competition is very keen between automakers”.

According to its prospectus, Leapmotor recorded a net loss of almost Rmb2.9bn ($414mn) in the 12 months to the end of 2021, and a loss of Rmb1bn for the three months ending in March this year. Leapmotor said it would use proceeds from its listing on research and development, enhancing production capacity and boosting its sales network and branding.

JPMorgan, China International Capital Corp, Citigroup and China Construction Bank are joint sponsors of the deal, which is set to price on Friday. Leapmotor expects to begin trading on September 29.