The Hong Kong exchange was the listing venue of choice for some of the world’s top international IPOs last year, but 2012 has been a very different story.
Source: Reuters/Stringer China
Investor sleeps on a bench in front of an electronic board showing stock information at a brokerage house in Huaibei
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Hong Kong’s IPO market has had a terrible start to 2012. The only IPO of more than US$1bn done in the year to date has been the US$1.84bn float of Haitong Securities, China’s second-largest brokerage, and recent deals are struggling. The drought is expected to last until the end of the third quarter, when there is expected to be more clarity over Europe’s debt crisis.
IPO volumes in Hong Kong plunged more than 80% in the first five months of the year, compared with the same period last year, as investors chose to stay on the sidelines amid falling markets.
There was hope that the completion of Haitong’s listing in April would bring some excitement to the market, but renewed weakness in global markets killed off all such hope.
As of May 28, the Hong Kong stock market had fallen more than 9% since Haitong’s trading debut, amid concerns over the lingering Europe debt crisis and a slowdown in China’s economic growth. Haitong’s share closed at HK$10.26 on May 28, 3.2% below the IPO price.
A number of companies tried to push their deals ahead after Haitong’s listing, but they either failed or are struggling. China Yongda Automobiles Services, for instance, scrapped its proposed Hong Kong IPO of up to HK$3.37bn (US$433m) after failing to attract enough demand from investors. China Nonferrous Mining Corp, which was supposed to close books on May 24 for its Hong Kong float of up to HK$2.44bn, extended its bookbuilding period in the hope of dragging the deal across finish line but threw in the towel on May 30.
The US$1bn Hong Kong IPO of London-based Graff Diamonds, a high-end jeweller catering to the super-rich, draw a lot of attention from global long-only funds, but it, too, threw in the towel last week.
Bankers believe the worst may be yet to come, and the issuance window for IPOs will only reappear at the end of the third quarter at the earliest.
“The global markets should be more stable then. The Greek or the Spanish situations will probably be more certain. The problems cannot be solved very easily, but, at least, there is some certainty of what’s going to happen. I think investors are looking for certainty rather than resolution,” said Wang Chang Hong, head of ECM at Citic Securities International.
David Douglas, global head of equity capital markets at Standard Chartered, also reckons the market will only re-open post-August, though there are already signs of revival of global investors’ interest to the region.
“It’s a very difficult time to execute any deals. The good news is funds in London and Europe start thinking the sell-off in China is going too far, to the level that investors are now looking to start relocating their money back to the region,” said Douglas.
No quick fix
Despite the market challenges, some major issuers are still keen to push on with their deals in June in order to avoid spending a few more months to update financial figures, which are due to expire at the end of June.
China Everbright Bank and Sany Heavy Industry, for instance, are among the issuers looking to bring back floats that were shelved last year. CEB is looking to raise US$2.5bn, while Sany is targeting US$2bn, in June or July.
However, it is generally expected that only deals with compelling equity stories and reasonable valuations will get done.
“We are seeing issuers beginning to be more rational in valuations,” said Douglas. “They go one extra step to get their deals well prepared in areas such as corporate governance and information disclosures, so as to give themselves the best possible chance.”
The stream of new deals in South-East Asia this year has also overshadowed the Hong Kong IPO market, raising questions over whether or not the bourse has lost its charm. For example, motorsport-related Formula 1 and plantation operator Felda Global Ventures, which plan to raise US$2bn and US$3bn in Singapore and Malaysia, respectively, have attracted plenty of attention.
Still, many bankers believe the Hong Kong IPO market will rebound quickly once market sentiment turns for the better.
“To us, Hong Kong remains the premium marketplace in the region,” said Douglas. “After all, China is the largest economy in the region, and Hong Kong has the history to be the largest fundraising place in Asia.”
There is a long list of companies lining up to list in Hong Kong, including many jumbo PRC offerings, as usual. They are expected to move quickly once the market stabilises.
The planned mega Hong Kong floats include China Guangfa Bank (US$2.5bn), PICC Group (US$3bn), China Railway Materials (US$2bn), China National Biotec Group (US$2bn) and XCMG Construction Machinery (US$1bn).
