Dual-currency IPOs on the way, says PwC
After a freeze lasting eight months, Hong Kong's growing yuan deposit pool looks likely to help spark a revival of yuan-denominated IPOs
Two or three dual-currency IPOs are likely in the second half of this year as market sentiment improves and interest in such deals grows with Hong Kong's expanding yuan deposit pool, the accounting firm PricewaterhouseCoopers says.
Benson Wong, a partner at PwC, said yuan listings were expected to resume after an eight-month freeze, though with deals no smaller than HK$1 billion. Wong said the minimum size was because "a small size will result in thin transaction [volume], which would not favour share price performance".
Wong said many firms with China exposure were still attracted to dual-currency IPOs because of their development needs on the mainland, even though many institutional and retail investors adopted a "buy-and-hold" approach in the expectation of yuan appreciation, often resulting in thin liquidity. Hong Kong had a total deposits of 698.5 billion yuan as of May.
Only two firms have raised yuan-denominated IPOs in the city so far, despite Hong Kong officials making big efforts to develop the city's nascent yuan business. The share price performance of both yuan-denominated stocks, Hopewell Highway and Hui Xian Real Estate Investment Trust, has been lacklustre since their listing.
The South China Morning Post reported last month that Shuibei Jewelry, a mainland retailer of mass-market jewellery and accessories, is preparing to raise as much as 500 million yuan. It was reported earlier that the mainland chemical producer Meilan International could be the first company to raise both yuan and Hong Kong dollars in a dual-currency IPO.
Hong Kong could see as many as 80 IPOs this year, up from 64 last year, PwC said. That would mean another 38 to 48 firms listing on the main board and another nine firms listing on the GEM board in the second half.
PwC expects the amount of funds raised through Hong Kong IPOs this year to increase by as much as two-thirds, to up to HK$150 billion.
The steep drop in the city's Hang Seng Index recently amid fears of a tapering off of quantitative easing in the United States has caused a handful of firms to delay their listings. Even though the index has recovered in the past week, investors' interest in new listings remains lukewarm.
CAA Resources, a Malaysian iron ore miner set to list today, has recorded no transactions in the grey market before being officially traded, according to data from local brokers. The firm had already postponed its listing from mid-June after the market dropped sharply.
Japan Home Centre, the Hong Kong-based discount houseware retail chain, is said to be preparing to raise HK$500 million, marking the listing of another well-known local brand after the second-hand handbag retailer Milan Station and the restaurant chain Tsui Wah.