DELISTING TREND PICKS UP PACE IN HONG KONG

CMIC Vehicles offers HK$1.1b share buy-back as cheap valuations tempt many firms to go private this year, posing a headache for the city’s bourse

A wave of companies choosing to delist from Hong Kong’s stock market by taking themselves private is gathering pace as cheap valuations tempt more investors into buy-out deals.

This week, CMIC Vehicles, one of China’s top truck manufacturers, offered to buy back all the shares it does not already own for HK$1.1 billion, becoming the latest in a string of companies to go private this year. Chinese sportswear giant Li Ning is also reportedly mulling a privatisation plan after a 70 per cent plunge in its stock price last year.

Hong Kong-listed firms have been involved in US$4 billion worth of take-private deals already in 2024, compared with US$1.2 billion for the whole of last year, according to data from Dealogic. Buyers have often cited undervalued shares as a reason for the deals.

For CMIC Vehicles, the low liquidity and cheap valuation have “created difficulty for the company to effectively conduct fundraising exercises on the Hong Kong stock exchange”, it said in a filing to the exchange earlier this week.

Similarly, China Traditional Chinese Medicine Holdings, which had been listed in Hong Kong since 1993, proposed a HK$15.6 billion privatisation plan last month because of its low share price and the trading multiples of comparable companies.

The current function of the listed company as a platform for financing was “restricted” and “it’s difficult to make use of equity financing to provide sources of available funds to finance its business development”, it said.

French skincare company L’Occitane and American luggage maker Samsonite had also recently engaged with advisers and investors about potential takeprivates in Hong Kong, Reuters reported on Tuesday.

“Some listed companies would feel their valuations are being dragged down by the weak broader market to unreasonably low levels,” said Dickie Wong, executive director at Kingston Securities. “Peers listed in other markets like the mainland can often fetch higher valuations and prices for their shares.”

The benchmark Hang Seng Index is now trading at about 9.1 times forward earnings on average, according to Bloomberg data. By comparison, the price-earnings ratio for the CSI 300 Index tracking the biggest companies listed in Shanghai and Shenzhen stands at 13.4 times, while S&P 500 members trade at an average of 23.2 times.

“More clients are asking about privatisation recently compared to a few months ago, and the second half of last year was already very aggressive,” said Jaycen Liao, senior partner in the capital markets department at Zhong Lun Law Firm.

The growing buy-out trend is a potential headache for the Hong Kong bourse, which has been struggling to attract new listings as the market has languished. The benchmark Hang Seng Index fell 14 per cent in 2023.