Chinese financial firms grab bigger share of Hong Kong IPO deals

With large-size IPOs shrinking globally, international investment banks are under pressure and will put more focus on M&A deals

PUBLISHED : Thursday, 26 January, 2017, 3:54pm
UPDATED : Thursday, 26 January, 2017, 11:02pm

Foreign investment banks are facing more difficulties in winning initial public offering deals in Hong Kong amid the rise of smaller mainland Chinese and local rivals as well as the scarcity of big IPOs in the city.

In 2016, Morgan Stanley saw its number of sponsored Hong Kong IPOs drop to six, compared with 10 the year before, although it still ranks No 1 among investment banks in Hong Kong for the two year period, according to data from Phillip Securities. Deals for Goldman Sachs fell from six to five over the same time.

China’s Guotai Junan Capital, however, sponsored eight Hong Kong IPOs in 2016 compared with six deals in 2015, taking No 2 spot for the two year period.

Hong Kong-based Ample Capital saw the number of IPOs it sponsored surge to seven in 2016 from three a year earlier, ranking at No 6.

In terms of underwritten deals, mainland-backed BOC International, Haitong International, CCB International, CMB International and ABC International dominated the top five for 2016, with Morgan Stanley in sixth place for last year, according to data from Bloomberg.

Ringo Choi, Asia-Pacific IPO Leader at auditing firm EY, said Chinese financial firms are becoming more competitive and will continue to grab share from foreign firms in Hong Kong’s IPO market.

“Chinese companies seeking a mid-size IPO tend to look for sponsors with a China background, partly because they already have cooperation in the mainland market, such as in the financing and investment business,” Choi said.

“International bankers are in favour of large deals, but such cases are decreasing globally and they seem to be shifting their focus to M&A and other businesses,” Choi said.

Hong Kong ranked first in terms of number of IPOs and total funds raised in 2016 among worldwide financial centres, but the number of large-size share offering – at HK$5 billion or above – shrank from 15 in 2015 to 10 in 2016, according to KPMG.

Morgan Stanley jointly sponsored the city’s largest IPO last year, Postal Savings Bank of China, while Goldman Sachs sponsored Zheshang Bank when it listed.

Kenny Wen Kit, wealth management strategist at Sun Hung Kai Financial, said Hong Kong’s local financial firms benefited most from a rush of small-size IPOs by local construction companies listing on the Growth Enterprise Market or the main board last year, with each one raising about HK$100 million in funds.

“We will see more such small IPOs coming this year,” Wen said.

Cheaper fees and familiarity with mainland companies’ business also helped China-backed investment banks grab market share in Hong Kong, Wen added.

“Chinese investment banks developed quite well over the past two decades. Twenty years ago there was only CICC doing IPO deals in Hong Kong, but now there are a lot,” Wen said.

In 1997 China’s first investment bank CICC completed the IPO deal for China Mobile, representing the start of the trend for state-owned companies to list outside the mainland.