Corporate Finance

Uncertainty may chase cash from HK market

PUBLISHED : Thursday, 10 November, 2011, 12:00am
UPDATED : Thursday, 10 November, 2011, 12:00am

Hong Kong's stock market could be undermined over the next six months, as global uncertainty and the mainland's credit squeeze lead investors to pull out their money, deterring public offerings and making life difficult for public equity firms.

While the benchmark Hang Seng Index yesterday rebounded 1.71 per cent to close at 20,014.43, liquidity was thin, with daily turnover of just HK$60.4 billion, down more than 10 per cent from the average in October and September.

Alan Lam, greater China equity analyst for private bank Julius Baer, warned yesterday that liquidity in Hong Kong could remain low for the next six months as global and mainland investors repatriate funds.

He also said companies raising funds from the Hong Kong stock market over the next few months might suffer lower stock valuations.

Private equity firms worldwide were already finding it increasingly difficult to use initial public offerings as a cash in on investment projects, according a survey by accounting firm Grant Thornton Jingdu Tianhua.

It surveyed 144 private equity firms across the world in the autumn and found that most of the mainland's firms expected to see fewer of their peers seeking to use a listing to unload their investments over the next 12 months.

Globally, only 14 per cent of respondents would choose the IPO exit option. The rest would opt for a trade sale or secondary buyout by another private equity firm. However, the IPO option was more popular in emerging markets like Brazil, Russia, India, China and South Africa.

Hong Kong remains attractive to offshore companies. The London-based Graff Diamonds is expected to ask investment banks this week to summit proposals for its plan to raise US$1 billion in a Hong Kong listing next year, said a person familiar with the matter. Graff, a retailer of ultra-high-end diamonds, would use the proceeds to expand its retail network in Asia and expand production.

China National Biotec, the fourth-largest vaccine marker in the world, also aims to raise about US$1 billion in mid-2012, another source said. However, the company had initially aimed to raise up to twice that sum.