Chinese hotpot chain Haidilao fizzles after strong start in Hong Kong debut

By Julia Fioretti

HONG KONG (Reuters) - Haidilao's shares gave up their sharp initial gains on debut in Hong Kong on Wednesday, raising questions about the Chinese hotpot chain's $12 billion valuation and about the outlook for IPOs in the financial hub.

It is the second major Hong Kong listing in a week to lose steam after a strong start. Chinese online food delivery-to-ticketing services firm Meituan Dianping gained about 5 percent on debut last week but is now trading below its initial public offering (IPO) price.

Haidilao climbed as much as 10.3 percent early on Wednesday to HK$19.64 compared with its IPO price of HK$17.80. But it retreated later to close at HK$17.82.

Haidilao, which mainly serves spicy Sichuan style hotpot and is popular for the free services and entertainment such as manicures and board games offered to waiting customers, raised almost $1 billion in its IPO.

Steven Leung, sales director at brokerage UOB Kay Hian, said Haidilao was already overvalued.

"The valuation is not at a very attractive level. People will be very selective regarding upcoming IPOs," he said.

Haidilao's $12 billion valuation puts it almost at the level of China's biggest fast-food chain Yum China Holdings Inc which is worth $13.4 billion and owns rival hotpot chain Little Sheep.

The IPO has boosted the riches of Zhang Yong, the former tractor factory worker who co-founded Haidilao in 1994, making his holdings in the company worth about $8.2 billion.

Haidilao, which posted a post-tax profit of 647 million yuan ($94.11 million) on revenues of 7.3 billion yuan for the first six months of the year, could raise $1.1 billion in total if a 15 percent "greenshoe", or over-allotment option, is exercised within one month of the start of trading.

Hong Kong is on track for a bumper year of listings, with $28.7 billion raised so far. That has been propelled by a stock market rally late last year that encouraged would-be listings, and by rules introduced this year to attract tech firms by allowing them to weight voting rights in favour of founders.

But an 18 percent drop in the benchmark Hang Seng index from its January high and a worsening Sino-U.S. trade war have weighed on the performance of several IPOs, such as those of smartphone maker Xiaomi Corp and China Tower, which are trading below their IPO price.

Haidilao plans to use the proceeds to fund its international expansion into markets including Britain and Canada, and to develop and implement new technology in a bid to better control food safety after food hygiene issues over the past two years.

CMB International and Goldman Sachs led Haidilao's IPO.

($1 = 7.8135 Hong Kong dollars)

($1 = 6.8752 Chinese yuan renminbi)

(Reporting by Julia Fioretti; Editing by Muralikumar Anantharaman)