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.

China Daily (Canada) - - HONGKONG -

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 celia@chi­nadai­lyhk.com

PARKER ZHENG / CHINA DAILY

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.

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