A Chinese bad-debt management company's shares soared in their Hong Kong debut Thursday, indicating strong investor enthusiasm for a business that could flourish if the world's No. 2 economy stumbles.
State-owned China Cinda Asset Management is China's first distressed asset management company to go public.
The company's shares rose 27% to close Thursday at 4.50 Hong Kong dollars ($0.58) after rising as much as 34% during the day. There was strong interest from local retail investors, whose demand for the shares was 160 times the number available, and big institutional investors, whose portion of the global offering was "significantly oversubscribed," according to a filing with Hong Kong's stock exchange this week.
China Cinda is a so-called "bad bank," one of four big entities originally tasked with moving nonperforming loans off the books of China's state-owned banks. Cinda raised HK$18.5 billion ($2.4 billion) from its stock offering, making it the biggest initial public offering in Hong Kong this year.
Investors are betting the company, which profits by reselling bad debt bought at a discount, will benefit from a growing pool of distressed loans fueled by easy credit in China. Bad debt isn't exactly hard to find as China's economy undergoes an uneven recovery after slowing to a two-decade low in the second quarter. Nonperforming loans in the country spiked 18% in the third quarter compared to a year ago.
The company offers investors a new twist on China's growth story that has been based for decades on the promise of supercharged economic expansion.
Investors are betting the company, which makes money buying up distressed assets at a discount and reselling them for a profit, will benefit from rising levels of bad debt as China's economy undergoes an uneven recovery after slowing to a two-decade low in the second quarter.