Worsening sentiment narrows market window for new listings
Tougher regulatory checks and worsening sentiment also keeping cash-hungry mainland companies away from Hong Kong market
Charlotte So and George Chen
The so-called "market window" for companies that plan to list in Hong Kong this year is closing after a major mainland bank failed to launch its initial public offering this week, thanks to worsening market environment, bankers and analysts say.
What makes it more difficult for listing hopefuls, particularly cash-hungry companies from the mainland, in seeking to launch their share sales soon is the securities watchdog's tougher scrutiny on new offerings.
The postponement of the public offering of China Everbright Bank, a medium-sized state-controlled bank already listed in Shanghai, dampened the sentiment of other potential listing candidates.
Poor market liquidity and low interest in new public offerings from both institutional and retail investors mean a smaller chance of bigger stock offerings happening for the rest of this year, bankers say.
"The year is set to be a very tough one for bankers in the equity capital market because equity deal flows have continued to remain weak," said a market veteran with a European bank. "And that also means bad news for bankers' bonuses at the year-end."
The initial public offering market in the city is facing a dual threat as larger enterprises such as Everbright Bank do not want to underprice themselves by rushing to list while smaller companies have to encounter more stringent requirements from regulators after a tide of scandals about false accounting by newly listed mainland private enterprises.
Edward Au, a Hong Kong partner in charge of the public offering group at global accounting firm Deloitte, said although the market anticipated another round of quantitative easing, the outlook for next month may not be promising.
"We expect the number of new listings on the main board [in Hong Kong] this September to be fewer than September last year," Au said.
Currently, mainland state-owned enterprises must seek additional approval from relevant state authorities in Beijing before they can apply to list in Hong Kong. They included the powerful State-owned Assets Supervision and Administration Commission, which reviews listing applications of state enterprises, Au said.
He said the commission would be particularly concerned about the valuation of state enterprises to prevent the inappropriate drain of state-owned assets. This often led to disagreement between the state enterprises and their investment banks on the pricing of their stock offerings amid the tough market environment.
"Investors are losing interest in IPOs but are inclined to do bottom-fishing among listed companies, given they are trading at very attractive levels," said Peter So, the managing director and co-head of CCB International Securities' research division.
The Hong Kong share market has underperformed those in the United States and Germany and even some Asian countries. The Hang Seng Index is up 7.35 per cent so far this year, while Singapore's Straits Times Index has gained 14.93 per cent and Thailand's SET Index is 19 per cent ahead. Germany's Dax Index rose 18.05 per cent and on Wall Street, the S&P 500 Index is 12.06 per cent higher.