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Chinese Bottled-Water Giant Surges in Hong Kong Debut

Stock in China’s top bottled-water company surged in its Hong Kong debut Tuesday, after investors thirsty for new stock sales placed nearly $150 billion of orders for a $1.1 billion deal.

Nongfu Spring Co. stock rose as much as 89% from its IPO price and by noon Hong Kong time stood 55% higher, giving it a market value of about $48 billion—or more than

Danone SA,

the French food company behind Evian and Volvic water and Danone yogurt.

The warm reception for Nongfu Spring shows Hong Kong investors remain eager for ways to bet on China’s increasingly affluent consumers. That is a good omen for

Yum China Holdings Inc.,

YUMC -3.76%

the operator of KFC and Pizza Hut in China, whose new Hong Kong stock starts trading on Thursday.

Hong Kong’s IPO market lures many mom-and-pop investors, who often rush to subscribe to offerings before flipping shares for short-term gains, but in this case big institutions also laid out huge orders for Nongfu Spring.

Individuals placed nearly $87 billion of orders, or nearly 1,050 times the small portion of the deal reserved for them, according to a filing. That triggered an adjustment boosting their slice of the deal to 27% from 7%. Institutional buyers made 60 times more orders than shares on offer, implying they placed about $61 billion of orders.

Andrew Sullivan, an independent analyst in Hong Kong, said low interest rates were pushing small investors to seek returns by buying into IPOs, and they could fund subscriptions with cheap margin loans from brokers.

He said the business model was attractive, too. “The key here is that there are good profits in water. Once you have your source and bottling sorted, it is then a matter of where you pitch your brand, the distribution and price point.”

Nongfu Spring had a net profit margin of about 21% of sales last year, more than double China’s industry average, according to Frost & Sullivan research cited in the prospectus.

Vincent Wen, investment Manager at KCG Securities Asia Ltd., said many investors liked Nongfu Spring because they saw it as a defensive investment. “Its businesses are immune to any global economic shock and U.S.-China tensions,” said Mr. Wen.

The IPO valued Nongfu Spring at nearly 29 times next year’s forecast earnings, according to Arun George, an analyst who publishes on the independent research platform Smartkarma. That is nearly twice Danone’s equivalent price-to-earnings multiple of 15 times and above

Coca-Cola Co.

KO 1.11%

’s roughly 23 times.

Five cornerstone investors, including Singapore sovereign-wealth fund GIC Pte. Ltd., Fidelity International and U.S.-based hedge-fund manager Coatue Management LLC, had endorsed the deal by committing to buy a total $320 million of stock wherever the deal priced.

Based in the eastern province of Zhejiang, Nongfu Spring was founded in 1996 by businessman Zhong Shanshan, and uses the slogan “Nongfu Spring tastes a bit sweet.”

The company ranked top in China’s packaged drinking-water market last year, with nearly 21% market share, according to Frost & Sullivan. It also sells tea-based drinks, juices and energy drinks.

Net profit rose 37% to 4.9 billion yuan ($717 million) last year, although sales and profit suffered in early 2020 as the pandemic disrupted supply chains and everyday life.

The IPO was led by

China International Capital Corp.

3908 -0.33%


Morgan Stanley.

MS -0.08%

The deal’s size could increase by 15% if underwriters exercise what is called a green-shoe option.

This is the year’s second-largest food and drinks IPO, after coffee maker

JDE Peet’s

NV raised nearly $2.9 billion in Amsterdam in May, according to Dealogic.

Write to Joanne Chiu at

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