Staff costs are rising faster than beer prices and its market faces intense competition. Still, Hong Kong investors sent Bar Pacific soaring as much as 1,600 per cent on its debut for the best-ever opening day by a pub group anywhere in the world.
The group, which specialises in local neighbourhood bars rather than the glitzy city centre offerings more usually associated with Hong Kong, raised HK$45.2m ($5.8m) through its initial public offering (IPO) on the city’s Growth Enterprise Market.
The shares at one point traded 1,624 per cent higher and closed at HK$4.05 ($0.52) up 1,297 per cent. That valued the company at $449m — implying a gain of $416m on the day.
GEM-listed companies, which can eventually graduate to the main market, have to find just 100 investors with whom to place the shares. The top 25 buyers of Bar Pacific’s shares at its listing held 99.5 per cent of the available stock at the start of the day.
“People who have been trading this are those who like gambling,” said David Webb, an independent stock analyst and corporate governance expert. “The price is detached from reality like bitcoin and it appeals to people who like trading that.”
A series of smaller Hong Kong IPOs have soared on their debut in recent years, aided by limited availability but also by speculation they could eventually become targets for mainland companies looking for a backdoor listing in the city.
Bar Pacific does not even make the city’s top 10 all-time gainers, according to Dealogic. All 10 have listed in the past two years and gained between 2,243 per cent and 1,500 per cent on debut.
Half of the top 10 opening day “pops” globally for the dining and lodging sector have listed on Hong Kong’s GEM market. Last year Dining Concepts, a restaurant operator whose interests include Gordon Ramsay’s Bread Street Kitchen in the city, jumped 851 per cent on its debut in August while just days later, Royal Catering Group, a casual dining group, closed 1,167 per cent higher.
Regulators have tried to crack down on backdoor listings, where already listed groups either sell assets to reduce themselves to a shell in the expectation of finding a buyer, or look to be sold wholesale.
Bars and entertainment groups have appeal because they have cash flow and do not hold complicated assets or other items hard to sell.
Last year nightclub operator Magnum Entertainment, which enjoyed an opening day gain of 90 per cent on its 2014 IPO, was bought by Zheng Jianjiang, owner of a mainland home appliances maker. The renamed Aux International is now in the process of buying a mainland property management group controlled by Mr Zheng, according to filings with the Hong Kong Exchange.
Bar Pacific’s stunning debut also comes amid a slowdown in Hong Kong’s economy, led by a drop-off in tourism from the mainland. The company’s prospectus suggested it would likely be less affected than its high-end rivals.
“Local bars/pubs might be less affected as they tend to be insulated by their lower operational costs, coupled by their more competitive pricing,” it said.
The group began in 1999 and now operates 32 bars outside the city centre.
Additional reporting by Hudson Lockett and Gloria Cheung