Expiring Lockups Will Put $6 Billion of Hong Kong Shares at Risk

(Bloomberg) -- The recent slump in video streaming giant Kuaishou Technology’s shares has awoken investors to the risk of expiring lockups for Hong Kong’s newly-listed stocks.

More than $6 billion worth of cornerstone investment lockups are due to expire within the next five months for this year’s IPOs, according to Bloomberg calculation based on stock exchange filings. The companies that face the biggest potential selling pressure include JD Logistics Inc., Bairong Inc., China Youran Dairy Group Ltd. and Linklogis Inc. -- a cohort of 10 companies with lockups accounting for more than 8% of their combined market capitalization.

Kuaishou fell the most on record on Aug. 5 after a post-listing lockup on sales of its shares expired, allowing some of its backers to finally dump their stock amid fears of China’s widening online crackdown. With many recent IPOs also in the regulatory crosshairs, traders will be watching closely for similar selling pressure around the time lockups expire.

The video giant will not be the only stock to see such a big expiration selloff, according to CMB International Securities Ltd.’s Daniel So.

“The timing of their listings makes the risk higher than usual. Most of those IPOs were priced when the market was near the peak and their shares have corrected a lot since then,” So said. “Moreover, other investors may choose to sell them before the lockup expiry to avoid such risks.”

The Hong Kong stock exchange usually prohibits cornerstone investors in a primary listing from selling shares for six months following the IPO. This year many new offerings were priced and listed before Beijing’s crackdown sparked a wide market selloff.

Nearly two-thirds of the shares of the 50 IPOs that still have lockups are trading below their offer prices. That could prompt some cornerstone investors to cut their losses and run once they are free to sell.

Fintech company Bairong has slumped more than 60%, as Beijing stepped up its scrutiny on digital finance businesses, while its bigger peer Linklogis has dropped 27% since its debut, having refuted a short-seller report in July. Bubble tea retailer Nayuki Holdings Ltd. has almost halved since its listing amid food safety concerns.

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