Hong Kong-listed mainland firms head home as city loses shine
Weak trading volume and cheap valuations mean Hong Kong is losing its shine as a financing platform, prompting mainland companies to delist from the city’s stock exchange and head home.
Shenzhen-based Logan Property is believed to be the latest planning to leave the city, following Wanda Commercial and Peak Sport.
“The Hong Kong market is no longer attractive,” Kingston Lin, security brokerage director at Hong Kong-based AMTD, said. “Capital is not flowing into Hong Kong as foreign investers are worried about China’s economy.”
Lin said that in the past five years, mainland blue-chip companies in Hong Kong had been trading at an average of only 10 times earnings.
Wednesday night, Logan Property said in an announcement to the Hong Kong stock exchange that its billionaire chairman, Kei Hoipang, was in negotiations with a Shanghai-listed firm on a possible share transfer. Trading in Logan Property was suspended yesterday pending the announcement.
Shanghai-listed China Jialing Industrial said on Tuesday that Logan Infrastructure, a sister company of Logan Property, would acquire all China Jialing’s shares for 1.82 billion yuan (HK$2.15 billion). Logan Infrastructure would then conduct a share placement to acquire the controlling stake in Logan Property.
Analysts said the sister company’s back-door listing on the mainland and its Logan Property acquisition were likely to result in the latter’s delisting in Hong Kong. A Logan Property spokeswoman declined to comment.
JP Morgan analyst Ryan Li said companies seeking to return to the equity market on the mainland made sense for some property developers including Logan, as the off-shore market perceived the high leverage as possessing excessive risk and were not willing to buy and hold on to the stock. “If Logan’s deal goes well, we would not be surprised to see more developers follow suit,” he said.
A rising number of Hong Kong-listed mainland firms are dissatisfied with their weak trade in the city and are going home.
Dalian Wanda Commercial Properties announced in April plans to privatise and relist on the mainland. Peak Sport Products, one of China’s largest sports goods manufacturers, last week said its controlling shareholder was considering a buyout plan and may delist from the Hong Kong bourse.
Since late 2015, UBS estimates around 10 Hong Kong-listed Chinese companies have announced plans to delist from Hong Kong or spin-off assets for a separate listing.
Nicole Wong, CLSA’s regional head of property research, said weak trading volumes and low valuations in Hong Kong mean Hong Kong has lost its sparkle as a financing platform.
“This funding issue makes H-share companies vulnerable to competition from A-share peers that have easier access to capital,” said Lu Wenjie, equity strategist at UBS.
But relisting on the mainland can also be a challenge.
The China Securities Regulatory Commission in May said it has tightened scrutiny on companies seeking to delist from overseas markets and return to China. The regulator said it was seeking to curb cross-border arbitrage and speculation in shell companies.
AMTD’s Lin said it was still too early to say if there would be a delisting trend given the rising policy uncertainty over mainland listings.