Goldman’s top banker says many Chinese IPO clients considering shift to Hong Kong from US exchanges
- The tap has not been turned off for US listings but ‘balance of activity’ is coming to Hong Kong, regional investment banking co-head Drayton says
- Hong Kong ranks third for global IPOs and secondary listings, behind Nasdaq and the NYSE so far this year, according to Refinitiv
“While the US will continue to be very attractive for Chinese companies, due to all of these factors, Hong Kong stands to benefit and already has,” Drayton, who is based in Hong Kong, said in an interview with the Post. “The trend will continue.”
Hong Kong ranked third globally for new stock offerings and secondary listings this year through October 29, with US$38.02 billion of proceeds, according to financial data provider Refinitiv. Nasdaq topped the league table with US$76.6 billion, followed by the New York Stock Exchange (NYSE) with US$52.2 billion.
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Goldman climbed one rung to fourth in Asia ex-Japan equity offerings this year through last week, garnering a 6.4 per cent share of the US$332 billion of proceeds credited to deal managers, according to Bloomberg data. Citic Securities, Morgan Stanley and China International Capital Corp led the league table.
A crackdown on the tech sector in China this summer, alongside new rules for overseas listings, have unnerved investors and caused a number of Chinese companies to pause or rethink plans to list in New York this year.
Against that backdrop, Hong Kong is seen as a safer venue for many Chinese issuers seeking foreign capital, Drayton said.
“This does not mean the US tap for Chinese issuers is turned off,” he added. “It remains appealing, but access will be sector- and name-dependent. In fact, we have a few things that will come to New York in the coming weeks or months. It’s just that the balance of activity is coming here.”
Despite a weak third quarter for new IPOs, there are positive signs for future listings in Hong Kong.
2021 IPOs and secondary listings by market
Market | Proceeds (US$b) | Number of Issues |
Nasdaq | 76.6 | 290 |
New York | 52.2 | 92 |
Hong Kong | 38.0 | 76 |
Shanghai | 20.5 | 78 |
Star Market | 16.5 | 134 |
Shenzhen ChiNext | 16.5 | 164 |
London | 15.6 | 27 |
South Korea |
13.5 | 16 |
Frankfurt | 10.5 | 13 |
Source: Refinitiv
As more privately-owned enterprises in growth sectors in China go public, there is a “snowball effect” in which those companies are likely to go back to the market to raise more capital with follow-on deals, which is a good thing for Hong Kong, Drayton said.
Repeat issuance by companies in Hong Kong is at US$70 billion year-to-date, the highest level ever, he said. That compares with about US$50 billion in follow-on activity last year.
“This evolution and the fundamental requirement for capital to fuel growth, means regardless of listing venue, after floating on the market, there is a need for follow-on issuance which has a snowball effect,” he said. “That backdrop, combined with the three factors driving a shift from New York to Hong Kong is creating an explosion of activity.”
However, there remains some lingering uncertainty, particularly given the amount of issuance activity this year.
“A very good company, three to six months ago, would have commanded a premium valuation. As we get into Q4, where there has been such an explosion of issuance activity, investors’ stomachs are full and there is a little bit of fatigue and uncertainty,” Drayton said.
“There’s going to be a compromise and it is going to come in the form that is acceptable to those investors. Then, it comes down to the individual issuer and their appetite and comfort around valuation. If you’re going to say I need that premium valuation, it may make sense to wait.”