New year, new race
A last- gasp burst has put Hong Kong back on track to take the second spot among global IPO destinations for 2014. But the going may get tougher for the SAR in the coming year, especially with Shanghai breathing down its neck. Celia Chen reports.
Tto a massive HK$84-billion ($10.8billion) rebound in initial public offering proceeds in December, Hong Kong is on track to becoming the second-largest IPO market globally this year, with a 33-percent increase in fund-raising from 2013.
That comes after the city’s IPO market suffered what was believed to be a difficult year, dogged as it was by poorly performing deals before December. Funds raised via share listings during the first six months put together touched just HK$82 billion, still 2.4 percent below that garnered just in December.
To add to its woes, Hong Kong lost out on the world’s largest IPO on record in September, when mainland e-commerce giant Alibaba Group Ltd decided to sell its shares in New York, raising $25 billion.
But even before losing the mega deal, the local stock exchange was in the doldrums, as fund-raising by its biggest IPOs in the first half of 2014 was far below expectations.
Henan-based WH Group Ltd, the world’s biggest pork supplier, was forced to postpone its April debut on lukewarm investment response even after cutting the size of its IPO to $2 billion from the initially expected nearly $6 billion. It finally floated shares in July and raised $2.1 billion.
Hong Kong Electric Investments, controlled by top Hong Kong billionaire Li Ka-shing, drastically reduced earlier estimates to raise just $3.1 billion in its January float, priced at the bottom of its marketed range.
But the pace picked up in December. Dalian Wanda Commercial Properties, the biggest mainland developer of shopping centers and controlled by mainland billionaire Wang Jianlin, raised $3.7 billion in Hong Kong, making it the largest listing in Asia this year.
But it had a less than stellar debut, tumbling 2.6 percent from its offer price of HK$48 to HK$46.8 as concerns about high debt and slow sales offset optimism over a rebound in the mainland property market.
On the other side of the coin, CGN Power Co, the largest atomic energy producer on the mainland, raised more than $3.2 billion in its Hong Kong IPO earlier this month and surged 19 percent on debut on Dec 10.
Beijing- based carmaker BAIC Motor Corp Ltd, backed by German giant Daimler AG, raised $1.4 billion in December despite concerns a slowdown in the mainland economy may curb demand for new vehicles.
The Hong Kong IPO market will end 2014 on a high note, forecasts accounting firm KPMG, as certain sizable floats are expected to be completed by year-end.
KPMG expects 109 companies to have listed in Hong Kong by the end of the year, the highest in a decade, with proceeds reaching HK$225 billion. That is 33 percent higher than the HK$169 billion recorded in 2013 when 97 IPO deals were completed.
But with spikes like the one in December unlikely to be repeated, what will drive the Hong Kong IPO market next year?
One promising area is financial services companies, which are expected to help the market remain strong in 2015, according to analysts.
Fund-raising is estimated to be sustained at the current level of about HK$200 billion, with sizable deals from financial services firms, and floats in the pharmaceutical and environment-related sectors.
Anticipated listings include those from lenders owned by mainland local governments, including the Bank of Beijing, Bank of Shanghai and China Guangfa Bank, and insurers Anbang Insurance Group Co, Taikang Life Insurance Co and Sunshine Insurance Group.
“China International Capital Corporation Ltd, the mainland’s first homegrown investment bank, reportedly postponed its Hong Kong debut to 2015 as the departure of the company’s senior management in 2014 delayed its IPO plan,” said Rebecca Chan, partner and head of Hong Kong capital markets group at KPMG China.
Financial asset management companies expect to be another driver for the Hong Kong IPO market in 2015 besides the banking sector.
“China Huarong (Asset Management Co Ltd) and China Orient (Asset Management Corp), mainly responsible for managing non-performing assets in the mainland for commercial State-owned banks, are expected to come to Hong Kong for their IPO plans next year,” added Chan.
Other than financial services companies, Chan believes environmental protection and pharmaceutical sectors would be the hot picks of the Hong Kong IPO market next year.
Not only KPMG, fellow accounting giant Ernst &Young (E&Y) also expects financial services to be the major sector raising capital through local listings next year.
“With the acceleration of interest rate reform and more alternative funding sources, financial services companies are able to diversify their business,” said Ringo Choi, AsiaPacific IPO leader and managing partner at E&Y.
But Ben Kwong Man-bun, a director at securities firm KGI Asia, forecasts that these financial companies may see their floats evoke only lukewarm response as Hong Kong investors are concerned about the slowdown in mainland economic growth.
Other than financial sector listings, retail and consumption, and technology, media and telecommunications (TMT) firms are expected to be hot property for the Hong Kong IPO market in 2015.
But there are some negative factors that may impact its performance next year.
“On the one hand, the mainland has adjusted its GDP growth target downward and developed economies such as Europe and Japan still face economic downside risks,” said Choi. “On the other, expectations of an interest rate hike by the US Federal Reserve may lead to the outflow of hot money from Hong Kong.” Contact the writer at email@example.com
Although Alibaba IPO’s shift to the US caused a stir in Hong Kong, the city still could impress the market with transparency and protection of the rights of investors heading toward the world’s second-largest IPO destination.