Hong Kong investment banks brace for shocks as competition intensifies

Technology firms facing strong IPO headwinds in city, says BOC International official

PUBLISHED : Monday, 16 January, 2017, 12:03am
UPDATED : Tuesday, 17 January, 2017, 11:44am

Competition is intensifying for investment banks in Hong Kong with global economic uncertainty shadowing one of the world’s largest initial public offering markets, an executive at a state-owned investment bank says.

Although the city was ranked global leader for listings last year, total funds raised in the Hong Kong stock market dropped to an eight-year low.

Daniel Ng Menghua, head of the investment banking division at BOC International, the Hong Kong-based unit of state lender Bank of China, said banks were also bracing for the slump in mega listings by shifting their focus to smaller deals from private enterprises.

“Competition is tough,” Ng told the South China Morning Post. “I think there are a lot of companies in this business competing for a shrinking pie.”

The total funds raised in Hong Kong through listings stood at US$24.35 billion last year, beating the US$19.32 billion raised in New York and Nasdaq combined, according to data from Thomson Reuters. But the amount was a 26 per cent fall from the US$33 billion raised in 2015.

Hong Kong to rank top again this year for global IPOs, raising HK$220 billion, PwC predicts

The city’s listing credentials for this year will depend on the performance of heavyweights like lending platform Lufax and Alibaba arm Ant Financial, which was last valued at US$60 billion. Alibaba owns the Post.

However, technology companies, popular with institutional investors in the US, have faced strong headwinds in Hong Kong.

Selfie application maker Meitu, which went public in December as “Hong Kong’s second-largest listed technology firm after Tencent”, has been trading below its listing price in 2017. Its shares closed at HK$8.22 on Friday, a 3.29 per cent drop from its listing price of HK$8.50.

Ng said that compared with their US peers, Hong Kong investors were less impressed by technology start-ups that had yet to turn profitable.

“A lot of investors in this region like companies that have earnings,” he said. “If you look at retail investors, technology companies are not something they understand.”

“The US has built the sort of technology knowledge and expertise. I think that is what needs to be happening in the Hong Kong market, sooner or later.”

Hong Kong tops global IPO markets despite total funds raised sliding to eight-year low

Hong Kong might also lose some of the potential listings to Shanghai and Shenzhen this year as mainland authorities sped up approvals of A-share offerings, global consultancy firm EY said in a recent report.

However, uncertainties have already cast a pall of gloom for job aspirants as top foreign investment banks are downsizing operations in Asia to cope with rising competition from local players.

Investment bank Goldman Sachs plans to cut nearly 30 per cent of its investment banking jobs in Asia, excluding Japan, while Bank of America has cut 24 such jobs in the region.

UBS was removing nearly two dozen jobs at its Asian investment banking arm, mainly in Hong Kong and Singapore, Reuters reported in December.

Hong Kong on track to retain its crown as leading global market for IPOs

However, Ng said state-owned BOC International would survive the tough competition due to its immense understanding of local regulations and strong network of Chinese investors.

For Chinese firms, Hong Kong still offered better transparency and efficiency than they could find at home, Ng said.

“You may not get the best valuation,” he said. “But you have a well-established legal framework. There is free flow of capital. You are subject to fewer regulatory uncertainties.”