Private equity managers express exit preference via Hong Kong IPOs, conference hears

Private equity investors have told a key industry event that while competition between the Hong Kong and Chinese stock exchanges for attracting technology-related listing candidates has intensified this year, they prefer to exit their investments through an initial public offering (IPO) on the Hong Kong bourse.

They said better liquidity, less restrictions on controlling shareholder sell downs after lock-up periods, and generally higher transparency on the Hong Kong stock exchange have combined to give more comfort to private equity investors in choosing the city to exit their investment via an IPO.

The leading investors were gathered for the “SuperReturn China” conference in Beijing.

Wanlin Liu, a managing director at the Carlyle Group, said while she saw a tendency two years ago for private-equity-backed Chinese start-ups to list on the onshore A-share market – shares trade on the two Chinese stock exchanges – more recently, she has seen more companies preferring to list on offshore markets, particularly Hong Kong.

“While the A-share market had traditionally won out (as a market for private equity exits from their Chinese portfolio companies) due to the higher multiples that A-share companies tended to trade at after their listing, recently offshore markets, especially Hong Kong, have become attractive due to their transparency and more ready access to liquidity,” Liu said.

Lock-up periods are predetermined amounts of time following an IPO when large shareholders such as company executives and investors representing considerable ownership, are restricted from selling their shares.