China’s IPO Frenzy Lures $273B to One Stock Offering | Hacker News Reader

China’s IPO Frenzy Lures $273B to One Stock Offering

bloomberg.com

21 pointsadventured12 comments

As someone involved in this I feel obligated to explain some basic mechanics in Chinese IPO. 1. Unlike in US. The underwriter/issuer doesn't decide who get the allocation. Instead it's a 2 tier lottery which is purely based on how much you put in and the RNG. This is mainly to stop the perceived "corruption" they think exists in US where a nice relationship with the broker can get you a good allocation in a hot IPO, AND the fact that you can just announce the amount you want to buy without posting any money for that. 2. Because of 1, individual investors treat this as a lottery instead of a popularity contest as in US, so everyone wants in. As a result, to protect the individual investors, the equivalent of SEC of china has an unspoken rule that the IPO company must have a PE ratio below 23(don't ask why 23). With current avg PE in 70s range, it looked like a sure win for whoever get the lucky allocation. 3. SO! Whoever get any movable money will be paticipating in this IPO, because you are looking at a risk free 10% -20% annualized return. Point to me one guy who think that's not awesome and I'll buy him a skii trip in the Alps.

So, just imagine Apple went IPO today, and priced at 1/3 of PE as MSFT, AND everybody has the same chance of getting the shares at the IPO price as long as you have the money to backup your order. How much do you think will be in this lottery.

Thanks for the explanation. It sounds like the stock is allocated to the entities willing to buy the largest amount though, not everybody has the same chance. If an investor asks for $70B of stock (through shell companies) even if the total offering is for only $1B, they'll get about 25% of this IPO without posting the $70B. It also sounds like the company going public has a big incentive to boost its short-term profits in the year leading to the IPO.

> looking at a risk free 10% -20% annualized return

I understand everything except this part. Where did you get the 10-20% risk free annualized return?

Nothing is risk free...as soon as people start promising that you need to run. Every pyramid scheme in history has promised "risk free" returns.

A ski trip to the Alps sounds awesome. Where do I sign up?

Note: the headline is the number of bids, not the final amount sold, which is a little over 2B usd if my math is right

I have to wonder how income distribution is currently in China, the only change appears to be the addition of industry leaders to what likely before hand was only party leaders.

Still the amount of money that moves around so quickly brings up the concern of possible fraud. How stringent are their controls on the market as compared to Europe or the US?

Are those rhetorical questions?

Is that a rhetorical question?

No.

Many China articles on HN today for June 4th.

yes, finally we can have affordable housing in vancouver in the future.

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