Hong Kong to remain top market for mega IPOs from Chinese firms
Ample liquidity will help the city remain as top market for mega deals from across the border despite Beijing's resumption of flotations
Hong Kong will retain top billing for big listings from mainland companies despite the resumption of initial public offerings across the border, bankers and lawyers say.
Funds raised by mainland firms in flotations in Hong Kong soared to US$14.6 billion last year from US$6.6 billion the previous year. Mainland issuers accounted for 96 per cent of the US$15.2 billion raised by companies based outside the city, marking a three-year high for such listings.
The surge coincided with a freeze on listings at mainland exchanges that had been imposed in October 2012 amid a protracted slump in the market.
The suspension of flotations on the mainland, which was lifted last month, diverted a stream of listing hopefuls to Hong Kong, attracted in part by its liquidity.
"Hong Kong's listing market remains the top destination for sizeable deals from the mainland, given the ample liquidity and international investor base," said Edward Au, a partner at Deloitte specialising in mainland and Hong Kong listings. "The mainland's [listing] market is undergoing a transition where issuers face suppressed valuations and trimmed deal size."
However, Ringo Choi, a partner at EY, said the resumption of mainland listings might hurt Hong Kong as issuers could sell their shares across the border at more attractive valuations.
About 40 mainland companies have rushed to list on the mainland since last month, in mostly smaller-scale share offerings. In contrast, last year's bumper crop of share sales by mainland firms in Hong Kong was led by China Everbright Bank's US$3 billion deal, also the second-largest in Asia for the year. China Cinda Asset Management and city commercial lender Huishang Bank also came to market with offerings totalling more than US$3.5 billion.
Elsa Chan, a partner at law firm Baker & McKenzie, is among those who believe the reopening of the mainland's listing market will not dim Hong Kong's appeal for mainland issuers.
However, industry professionals believe the approval process may become longer after the Securities and Futures Commission's moves to tighten oversight of the listing market, with tougher rules for sponsors such as criminal liability for misleading statements in prospectus.
"Under the new rules, we expect the comments made and the questions raised by the SFC and [Hong Kong Exchanges and Clearing] will be more specific and focused," Chan said. "The investment banks have been extremely careful and prudent in acting as sponsors for listing applicants recently."
Aided by last year's market rally in the United States, the New York Stock Exchange and the Nasdaq Stock Market posted a combined 200 per cent rise in the value of listings by non-US firms to US$5.3 billion, in part due to Beijing's moratorium on flotations.
Baker & McKenzie said the US Securities and Exchange Commission's recent ruling on banning the mainland affiliates of the Big Four accounting firms from auditing US-listed Chinese firms could prompt more mainland listing candidates to pursue share sales at home or in Hong Kong.
Mainland e-commerce giant Alibaba's share sale is perhaps the most keenly anticipated listing, with Hong Kong vying for the potential US$15 billion deal.
