Magnum rockets in HK debut as mom and pop investors get night club fever

Thu Jan 23, 2014 2:10am EST

* Magnum shares more than double in hectic trading

* IPO breaks record for retail demand in Hong Kong

* Deal shows retail crowd set to fuel strong IPO year

By Elzio Barreto

HONG KONG, Jan 23 (Reuters) - Hong Kong's mom and pop investors piled into night clubs on Thursday, driving shares in debutant Magnum Entertainment Group Holdings Ltd to more than double the offer price for a business rooted in mirrorballs and cocktails.

In intense trading, Magnum's stock surged as high as HK$3.21 on its opening day, compared with its initial public offering price of HK$1.50. The retail tranche of the IPO was oversubscribed more than 3,500 times, a new record and a reminder of the fervor of retail investors in a market that's set for its biggest IPO year since 2010.

Shares in the group, which manages three night clubs near Hong Kong's financial district, were changing hands for HK$2.88 in afternoon trading. Magnum raised HK$126 million ($16.2 million) in the IPO and will spend proceeds on opening a new club in Hong Kong - and possibly expanding into mainland China and Southeast Asia.

The listing enjoyed a high profile in the city - the prospectus came with a cover showing lavish club settings - and typified the kind of offer that reels in the army of retail investors who fuel Hong Kong's biggest IPOs.

The previous record for IPO demand by volume of applications was set in 2011 when Milan Station Holdings Ltd, which sells used designer handbags, went public with an oversubscription rate of 2,100 times.

Milan Station surged 65 percent in its own first-day trading pop, but has fallen away since. The company, which issued a loss warning last December citing a slowdown in the luxury handbag market, was trading 43 percent below its IPO price on Thursday.

BEIJING CLUB

Magnum will hope to avoid that fate, boasting a whopping gross profit margin of around 80 percent in recent years, fortified by sales of expensive drinks.

It plans to use about half of the IPO proceeds to open its fourth club, called Zentral, in 2014, according to the prospectus. A further 20 percent of proceeds will be set aside for marketing, and 20 percent will go to research expansion plans into mainland China and Southeast Asia.

Magnum is controlled by 61-year-old Yip Mow Lum, who went from trading textile quotas in Hong Kong to become the owner of local brokerage Bright Smart Securities and Commodities Group Ltd.

The company opened its first venue, called Beijing Club, in 2007 and a second, Billion Club, a year later.

Magnum Club became the group's third and largest venue in 2011, its glitzy interior decorated in crystal and a mosaic of mirrors. The club targets wealthy patrons from native Hong Kong and expatriate communities, as well as mainland China, with Moet & Chandon champagne and Belvedere vodka.

BOCOM International Securities, the international investment banking arm of Bank of Communications Co. Ltd , was sole global coordinator and sole bookrunner of the IPO. Anglo Chinese Corporate Finance was sole sponsor of the deal, while Kingston Securities was also joint lead manager.

The banks stand to earn $1.6 million fees for managing the IPO, equivalent to a 3.3 percent underwriting commission and up to 6.7 percent in incentive fees to BOCOM International. The 10 percent in total fees is high, compared with an average of 2.5 percent-3 percent for a typical new Hong Kong listing. ($1 = 7.7579 Hong Kong dollars) (Reporting by Elzio Barreto; Editing by Kenneth Maxwell)