There is life in the IPO

PUBLISHED : Monday, 31 December, 2012, 12:00am
UPDATED : Monday, 31 December, 2012, 4:58am

Like an endangered species clinging on to the last remnants of its natural habitat, the Hong Kong initial public offering was scantly seen in 2012. The euro zone sovereign debt crisis rumbled through the markets for most of the year, putting paid to many issuers' plans.

Hong Kong investors, like many around the world, bunkered down, piling into bonds but largely spurning stocks and, in particular, IPOs.

But there are signs of a turnaround. People's Insurance Co (Group) of China, the mainland's largest non-life insurer, earlier in the month raised US$3.6 billion in a Hong Kong listing. The stock rose 6.9 per cent on its first day.

Most promisingly for the market, the deal was the first sizeable one in a long while to generate some strong interest from individual investors - the public offer portion of the IPO was 17.5 times subscribed.

This strong response came on top of a resurgent Hong Kong equity market, which has been rising steadily since June. Those gains are in part thanks to the United States' money-printing programme, known as quantitative easing.

Meanwhile, market volatility (known popularly as the "fear" index) has dropped by half in Hong Kong over the past six months, suggesting less risk. The equity market also looks set to stay buoyant into the new year, with the Hang Seng Index reaching for the 23,000 mark.

The suspension by the China Securities Regulatory Commission (CSRC) of new IPO approvals until at least the Lunar New Year could put a damper on listings from the mainland.

However, a number of transactions, most particularly in the mining, engineering, financial and property sectors, are already awaiting launch.

"We expect Hong Kong equity capital markets volumes to continue to be dominated by block trades in 2013. However, we do foresee a 20 per cent to 30 per cent pick-up in IPOs next year, as investor confidence slowly returns," says James Fleming, co-head of global capital markets for Asia-Pacific at Bank of America Merrill Lynch.

"Issuers will need to differentiate themselves to entice investors to buy new stories," adds Chris Marschall, managing director, equity capital markets at CIMB.

But IPOs by international issuers, such as those seen for Prada or Samsonite or Japanese issuers such as Dynam, are probably unlikely to return in large numbers - although there might be some for large, prestigious companies, for which Hong Kong is an obvious listing venue because of their activities in the mainland.

Similarly, while dim sum bonds should continue to post healthy and increasing issuance, yuan-denominated IPOs are not expected to make many inroads in 2013, so long as restrictions on the currency's convertibility remain.

Overall, expect a year full of surprises - starting perhaps with the possible resurgence of the IPO market.

Philippe Espinasse, a former investment banker, is the author of IPO: A Global Guide (HKU Press)