Hong Kong capital raisings extend slide
Risk aversion on prospect of Fed tapering sees decline in money raised in city's equity and debt markets for first nine months of the year
The amount of capital raised in Hong Kong's equity and Hong Kong dollar debt markets has slowed for a second consecutive quarter after investors became more risk-averse, with money flowing back to developed markets amid concerns over the US Federal Reserve's tapering agenda.
Fears of the mainland's mounting debt problems after a credit-fuelled boom that began in 2008, an upcoming debate on the United States' fiscal ceiling and the Fed's likely winding down of its US$85 billion-a-month bond-buying programme have weighed on investor sentiment around the world. These concerns triggered a reversal in global money flows into safe haven US treasuries and stocks.
In the first nine months of this year, the capital raised in Hong Kong's equity markets - including initial and secondary offerings as well as the sale of convertible bonds - dropped by 23 per cent from the same period last year to US$27.5 billion. The decline marked the slowest nine-month period since 2008, according to data compiled by Thomson Reuters.
Despite a slew of poor trading performances after listings, initial public offering issuance rose 39 per cent to US$7.6 billion in 43 deals in the first three quarters. This was mainly thanks to two state-owned enterprises - China Galaxy Securities and Sinopec Engineering - that raised a combined US$2.9 billion in May.
The decline in capital raisings this year was largely attributed to a sharp drop in secondary offerings, including rights issues, block trades and the big-ticket, club-style deals that target a handful of institutional investors.
Bank of America's US$1.5 billion sale of its remaining 1 per cent stake in China Construction Bank last month was one of the few high-profile transactions for the third quarter. It became the latest in a string of US banks to exit Asian investments amid the risk of rising bad loans.
IPO bankers say Hong Kong's listing market will see a number of small deals, including the listing of a pawnshop and a distributor of imported drugs, as well as China Cinda Asset Management's long-anticipated US$2 billion share sale. This is likely to be the largest capital-raising activity this year. Bankers said Cinda, one of the four bad-asset managers set up to manage the mainland's non-performing loans in the late 1990s, may kick off pre-deal investor education next month.
With the mainland's non-performing loans expected to shoot up significantly over the next few years, Cinda's offering may require cornerstone subscriptions amounting to about 20 per cent of the entire deal, according to a banker close to the deal.
Data compiled by Thomson Reuters showed that Goldman Sachs and UBS remained in the top two positions in the league table for Hong Kong underwriters. HSBC, which reorganised its investment banking arm in mid-August, moved up substantially to third place, from ninth last year, at the expense of Bank of America Merrill Lynch, which slid to eighth.
In the interest rate-sensitive bond market, Hong Kong dollar-denominated bond issuance plunged more than 45 per cent to US$7.4 billion in 201 deals in the first nine months, making it the worst nine-month period since 2000. The dim sum bond market - an offshore borrowing vehicle in yuan - rose by 8 per cent to US$20.9 billion.