The clock is ticking for cash-strapped mainland companies seeking to list in Hong Kong this year, but market sources say few are realistic enough to scale back their deal size to meet bleak market sentiment.
Any listing hopefuls must file their initial public offering applications and receive approval by the end of this month. If not, they will have to start again owing to the need to prepare a new set of financial documents for submission next year.
Despite the recent downturn in the global stock markets, mainland companies still want to list in Hong Kong this year, a source close to the market said.
For example, mainland construction machinery company, Sany Heavy Industry, is seeking Hong Kong Exchanges and Clearing approval to raise between HK$2.5 billion and HK$3 billion.
'The cost of capital is really high on the mainland. If you borrow from trust companies, the interest rate can be as high as 20 per cent a year,' said the source, who asked not to be named.
The source said some mainland companies that had shelved their offering plans in the first half might still try to list later this year.
From January to the first week of August, 12 flotations were withdrawn, according to Dealogic, a data provider. Most were medium-sized companies, including Beijing Jingneng Clean Energy, China Outfitters Holdings and Hosa International.
On August 5, China Everbright, a mid-sized financial services firm based in Beijing, postponed the planned sale of 12 billion H shares. The move followed an earlier cancellation in June and would have been one of the biggest offerings in Hong Kong this year.
Most of the planned listings aimed to fetch about HK$3 billion, the source said, adding that many of the companies were being 'one-sided' in setting their share values too high given the market sentiment.
Another source close to the market, who also wished not to be named, said any medium-sized mainland company aiming to raise more than HK$3 billion was being overly optimistic.
'You had better have a really good story if you want investors to pay a premium,' he said. 'It is the responsibility of investment banks to manage their clients' expectations.'
Hong Kong ranks No 2 in terms of total offering value so far this year, raising US$23.75 billion from 39 deals, according to Dealogic.
It was followed by London, Shenzhen and Shanghai. However, the New York Stock Exchange was in the lead with US$26.29 billion from 54 deals over the same period.