Global go­liaths get hum­bled in HK


When 2016 rang in, the Hong Kong in­vest­ment bank­ing scene took a sud­den un­der­dog sto­ry­line: Smaller local play­ers be­gan gob­bling up more deals in eq­uity cap­i­tal mar­kets (ECM), eat­ing into a mar­ket pre­vi­ously cor­nered by global play­ers. An­a­lysts reckon this trend favour­ing smaller, as well as main­land, play­ers will per­sist in 2017 due to the chal­leng­ing en­vi­ron­ment that has put dom­i­nant in­ter­na­tional houses on a slump.

“The mar­ket in Hong Kong is chang­ing rapidly. It used to be dom­i­nated by West­ern-ori­ented in­ter­na­tional and global in­vest­ment banks,” notes Keith Pog­son, se­nior part­ner, Asia-pa­cific fi­nan­cial ser­vices at EY. “But this has changed quite dra­mat­i­cally, with both a com­bi­na­tion of main­land play­ers and smaller local play­ers hav­ing a much larger share of the ac­tion and role to play.”

Di­vid­ing the deals pie

In the ECM space, in which Hong Kong has re­mained as one of the most vi­brant mar­kets glob­ally, deals are in­creas­ingly man­aged and un­der­writ­ten by main­land or local houses. Pog­son reck­ons this re­flects China’s dom­i­nance of the deal flow at the large end of the mar­ket, and the abun­dance of deals with local houses and bou­tiques at the smaller end.

Global play­ers, by con­trast, have been con­stricted to su­per large deals or deals that re­quire a wider mar­ket nexus, and they will not likely re­gain their dom­i­nance in the com­ing years. “Cap­i­tal mar­kets deal flow has be­come more bi­fur­cated, be­tween the pre­vi­ously dom­i­nant in­ter­na­tional houses, who are gen­er­ally get­ting a smaller slice of what was a rea­son­able sized pie in 2016, ver­sus local and main­land play­ers who have clearly been on an up­swing in terms of mar­ket share,” says Pog­son. “Pric­ing has re­mained tight given the dy­nam­ics and this, in the long run, is dif­fi­cult to see re­cov­er­ing back to the richer lev­els his­tor­i­cally en­joyed.”

A key theme in 2017 will be a shift in fo­cus to seiz­ing “smaller deals with great po­ten­tial,” says

Mark Chan, man­ag­ing part­ner at HM Chan & Co in as­so­ci­a­tion with Tay­lor Wess­ing, al­though there will be an oc­ca­sional mega trans­ac­tion. He notes a lack of size­able trans­ac­tions, es­pe­cially in the ini­tial pub­lic of­fer­ing (IPO) space in Hong Kong.

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