White Collar

Let battle commence: New York, Hong Kong IPO rivalry set to intensify

As New York fights back to reclaim its former glory as the global listings capital, analysts foresee a long, hard-fought battle with Hong Kong

PUBLISHED : Monday, 03 April, 2017, 4:04pm
UPDATED : Monday, 03 April, 2017, 10:18pm

The rivalry between Hong Kong and New York for global IPO supremacy may be set to intensify.

Hong Kong lost its crown as the world’s No. 1 destination for initial public offerings in the first quarter as a dearth of mega-listings saw the city drop to fourth place, behind New York in first, Shanghai in second and Shenzhen in third.

Analysts believe the new American administration under President Donald Trump has a renewed determination to capitalise on that success after years of watching the US’ reputation as the world leader in attracting IPOs decline.

I think President Donald Trump and Jay Clayton, his nominee to be chairman of the SEC, will focus on increasing the number of IPOs on US stock exchanges
Norm Champ, partner, Kirkland and Ellis

As New York gears up to fight harder for new listings, Hong Kong’s stock exchange is going to have to up its game in what is likely to become a long and bruising battle for the IPO top spot.

The first key battleground could be the listing of Saudi Aramco, the national oil company of Saudi Arabia, which has an estimated value of about US$2 trillion.

“IPOs in the US have been declining for some time now partly because of competition from the other two leading centres of capital formation, Hong Kong and London. The administration wants to reverse that downward trend since deep capital markets are essential to increasing US economic growth after eight years of a slower than usual recovery,” said Norm Champ, a partner at law firm Kirkland & Ellis, and the former director of investment management at the US Securities and Exchange Commission (SEC).

“I think President Donald Trump and Jay Clayton, his nominee to be chairman of the SEC, will focus on increasing the number of IPOs on US stock exchanges.”

Champ recently published a book, Going Public, looking at the SEC and the changes needed to strengthen the US financial system.

Champ points out that President Trump and Congress have already used the Congressional Review Act to repeal a Dodd-Frank mandated rule that required US public companies to disclose payments for “extractive resources.”

“I believe you will see the new SEC chairman follow suit by changing regulations in order to make it easier and more attractive for companies to go public in the US,” Champ said.

Sixteen companies chose to list their shares in Hong Kong in the first quarter of 2017, raising US$1.4 billion of capital, according to Thomson Reuters, a long way behind the 14 IPOs in New York which raised US$9.6 billion. New York’s tally was bolstered by Snap Inc’s US$3.9 billion IPO in March.

Hong Kong and New York have been rivals in the arena of attracting IPOs for some time.

Hong Kong has ranked top in the IPO market worldwide, as gauged by Thomson Reuters, for the last two years, as well as from 2009 to 2011.

The US snatched the crown in 2014 after e-commerce giant Alibaba chose New York for its US$25 billion debut listing. The decision to list there followed the Hong Kong regulator’s refusal to introduce a dual-share structure, which would allow shares with unequal voting rights to be listed.

This arrangement – popular with technology technology firms – is permitted in the US. Alibaba is the owner of the South China Morning Post.

Hong Kong this year will consult the market about launching a third board allowing dual shares, in order to attract technology stocks. Singapore – Hong Kong’s main financial rival in Asia – said in October that it would allow dual-share class stocks to list.

London Stock Exchange is also believed to preparing to fight for more IPOs. After the UK leaves the European Union, London could be free to set its own rules to attract more IPOs.