Auditors chop IPO forecasts amid euro woes

Auditors are slashing their forecasts for initial public offerings in Hong Kong this year as the euro-zone crisis continues to cast a pall over mega-size issuers.

PricewaterhouseCoopers (PwC) yesterday cut its 2012 IPO forecast by almost half to between HK$100 billion and HK$150 billion raised through 80 to 90 deals.

That is a far cry from its prediction in January of 100 IPOs this year, including 90 main board listings, fetching HK$200 billion to HK$230 billion.

PwC partner Edmond Chan said market conditions in the second half would continue to deter mega listings. Of the 25 main board listings in the first half, 14 were at single-digit price-to-earnings (P/E) ratios, according to PwC. Haitong Securities, the biggest Hong Kong listing and the third-largest global listing so far this year at HK$13 billion, fixed its offering price at HK$10.6, near the bottom of its target price range.

But Chan expected a better picture for listings in the second half, lifting the P/E ratio to 10 to 20 times for 2012 overall because the upcoming listings would mainly come from the retail and financial sectors. The listings in the first half were mainly from the industrial sector, the existing stocks of which were trading below 10 times P/E.

'The pricing of IPOs is affected by the share price of their peers which are already trading in the market,' Chan said. 'Investors are reluctant to pay a premium these days for new shares.'

Chan also expected the first yuan-denominated Hong Kong listing to happen in the second half, possibly from the industrial or retail sector. Ernst and Young also cut its forecast for 2012 to HK$190 billion yesterday, down more than a quarter compared with the HK$250 billion forecast made at the end of last year.

Dilys Chau, assurance partner at Ernst and Young, said Hong Kong might be pushed from the top of the global listing league because of the lack of mega-size IPOs.

Chau said the A-share listings would still be robust given the strong pipeline. Some of these aspiring issuers, including state-owned firms, might also consider listing in Hong Kong, she said, as the China Securities Regulatory Commission was boosting regulation of IPO pricing.

Jacky Lai, another assurance partner at Ernst and Young, said Hong Kong remained attractive to international companies. Should the acquisition of the London Metal Exchange by the Hong Kong stock exchange be successful, Hong Kong might also pitch itself as the gateway for global resources companies in listing and commodity trading.

Asian markets rose yesterday in expectation of further easing policies from the US and Europe. The Hang Seng Index closed up 1.51 per cent, or 294.07 points, to close at 19735.53. The CSI 300 index, which tracks big tickers listed in Shanghai and Shenzhen, gained 0.14 per cent to close at 2468.72.