Hong Kong tech IPO bonanza a mixed blessing as Coach, Glencore head for the exit

It’s been a mixed week for the city’s stock market, with a slew of successful technology debuts but two big-name international firms delisting because of thin trading

PUBLISHED : Saturday, 04 November, 2017, 8:01am
UPDATED : Saturday, 04 November, 2017, 8:01am

A series of successful recent initial public offerings suggests Hong Kong’s stock exchange may be turning into a listing hub for technology firms.

But the transformation is something of a mixed blessing as two large international companies with a traditional business focus announce their departure from the bourse.

The new trend shows the exchange’s efforts to get more “new economy” companies to list their shares here is bearing fruit, while past attempts to attract and retain international companies have proved less successful.

The exchange, traditionally a hub for financial and property companies, has seen several technology IPOs in recent weeks selling like hot cakes.

Though Hong Kong is one of the largest IPO destinations in the world in terms of funds raised, it has until now not been popular with technology companies. It ranked only 12th worldwide for tech IPOs in the first eight months of this year, below the likes of New York, Switzerland, Singapore and South Korea, according to Thomson Reuters data.

Globally, funds raised through tech IPOs in the same period surged threefold to US$18.87 billion from a year earlier.

Hong Kong’s IPO market has been dominated by financial firms, which made up 59 per cent of funds raised between January and September, while technology companies accounted for a mere 0.8 per cent, Thomson Reuters data showed.

The recent spate of tech IPOs hopefully represents a turnaround. The latest data from the stock exchange shows IT shares had become the third largest category in the Hong Kong stock market as of the end of September, after property and finance.

The tech IPO trend is likely to continue, particularly after the regulator and the government supported Hong Kong Exchanges and Clearing in launching a pilot scheme next year to allow “unicorn” internet companies – those with a valuation exceeding US$1 billion – with dual class shares structure to list here.

The red hot fintech IPO rally started with online-only insurer ZhongAn Online P&C Insurance, which launched the biggest listing by a financial technology firm in Hong Kong’s history in September, locking in about HK$200 billion (US$25.64 billion) of capital in an offering that was nearly 400 times oversubscribed ahead of its debut, making it the most popular flotation of the year at that time.

China Literature listing expected to leave ZhongAn’s IPO in its shadow

Its record however was quickly and easily surpassed by China Literature, the mainland’s largest online publishing and e-book site, which has just completed its IPO this week and is expected to be oversubscribed by more than 600 times and lock up about HK$520 billion (US$66.66 billion). That would make it the second highest on record after China Railway Construction Corporation’s IPO locked up capital of HK$540 billion.

US-based gaming equipment maker Razer, which is backed by Intel Corp and Hong Kong businessman Li Ka-shing, also started its IPO in Hong Kong on Wednesday.

“It is a natural trend for investors to shift their focus to the technology and new economies as mainland companies such as Tencent or Alibaba are not just coming out with good innovations, but also delivering profits,” said Clement Chan Kam-wing, managing director of accounting firm BDO.

Hong Kong investors are very smart. They put their money on whatever sector or companies promise them a good return
Clement Chan Kam-wing, managing director, BDO

“Hong Kong investors are very smart. They put their money on whatever sector or companies promise them a good return. The trend of fintech and other technology companies listing in Hong Kong is set to continue in the coming year.”

“These technology IPOs are very popular with Hong Kong investors. Many investors want to take a quick profit after seeing the strong share-price rally of the technology companies in both Hong Kong and overseas,” said Gordon Tsui Luen-on, managing director of Hantec Pacific.

ZhongAn’s share price shot up at least 60 per cent from its debut at HK$59.7 on September 28 to HK$90.8 on October 9 before dropping back to HK$77.3 at Thursday’s close.

Besides retail investors wanting to make a quick profit from the tech IPO bonanza , large institutional investors are also chasing these stocks.

“The primary listings of technology-related companies in Hong Kong benefit from the level of local investor participation as well as international investor interest. Investors are seeking good liquidity and coverage by analysts,” said Mark Konyn, group chief investment officer of insurance company AIA Group.

But the lock-up of so much capital in the tech IPOs and other technology-related stocks has dried up the liquidity in traditional stocks, prompting two international firms to opt for exit.

This week’s sizzling IPO bonanza was counterbalanced somewhat by news of the delistings of the two companies, which had faced a cold response from local investors.

American luxury brand Coach announced on Wednesday that it would withdraw from its secondary listing in Hong Kong because of thin trading. That came a day after Glencore, the Swiss commodity trading and mining firm, said it would delist on January 31 next year.

Both Coach and Glencore launched their secondary listings in the city in 2011, after the Hong Kong stock exchange ramped up its marketing campaign to promote the value of an expanded equity presence to multinational companies.

Their departure suggests their listings had not helped HKEX to become more international. Hong Kong stock market is still very much dominated by mainland companies, which account for 38 per cent of the main board’s market capitalisation and 47 per cent of its turnover.

Among the top 10 most traded stocks in Hong Kong in the third quarter, eight were Chinese firms, with only HSBC and HKEX itself as the exceptions.

HKEX proposes latest ‘Connect’ system – this time to lure more foreign listings and then link them with Chinese shareholders

Christopher Cheung Wah-fung, chairman of Christfund Securities and a lawmaker for the financial services sector, said the current tech fever may be just a short-term phenomenon. He believes investors would still be interested in buying the shares of good quality international companies.

“It’s very important for HKEX to fight for the many infrastructure projects of the Belt and Road Initiative to list here. And it’s likely that if HKEX could successfully fight for Saudi Aramco to list here, it would be the world’s largest IPO and would encourage investors to trade these international stocks listing in Hong Kong,” Cheung said.

Saudi Arabia is considering listing about 5 per cent of the state oil giant next year, which would raise US$100 billion if the firm was valued at about US$2 trillion as hoped.