 |
|
| With market sentiment improving, the Hong Kong Stock Exchange has become a hotbed of IPO activity (photo: HKEx) |
|
As economies inch out of recession, all eyes are on Hong Kong, the region’s third-largest stock market and a hub for initial public offerings (IPOs). A flurry of deals since June has put the heat back into the market, with companies scrambling to revive IPO plans shelved during the financial crisis.
As many as 100 IPOs are believed to be in the pipeline, among them several multi-billion-dollar deals. Analysts believe the current trend puts Hong Kong on track to finish the year as the world’s largest IPO market in 2009.
Even in the slower months earlier this year, activity has been quietly simmering at the Hong Kong Stock Exchange. Total market capitalisation rose 37.37 per cent in the first half of 2009. Capital-raised initial share sales alone amounted to US$2.3 billion. While this was 65 per cent lower than a year earlier, it still amounted to the lion’s share for the region. According to data compiled by Bloomberg, companies in Asia, excluding Japan, raised a total of US$3.59 billion through IPOs in the same period.
Big IPOs Coming
| |
 |
|
|
Ronald Arculli, Chairman of the Hong Kong Exchanges & Clearing Ltd, predicts the upward trend will continue
|
In announcing the bourse’s half-year profits in mid-August, Ronald Arculli, Chairman of the Hong Kong Exchanges & Clearing Ltd, predicted the upward trend would continue. “In the second half of this year and first half of next, there should be some big IPOs in Hong Kong.”
One reason for the optimism was the head-turning launch of Metallurgical Corp, which raised a combined US$5.13 billion selling shares in both Shanghai and Hong Kong, making it the world's second-largest IPO this year after China State Construction Engineering Corp's US$7.34 billion offering in July.
Demand was so hot for the US$885 million IPO of BBMG Corp that the Chinese construction materials company attracted more than US$100 billion, and posted a 56 per cent gain on its 29 July debut. Mark Williams, Hong Kong-based Asia Joint Head of Equity Capital Markets at UBS AG, which arranged the sale, saw this as evidence of renewed confidence.
“The key thing that BBMG showed us was the return of a huge amount of demand from retail investors, Hong Kong brokers, high net-worth individuals and China-sourced money,” Mr Williams said. “It’s a sign of people’s risk appetite returning.”
With many more deals in the pipeline, Mr Williams predicted that the final months of 2009 are set to be Hong Kong’s busiest in two years.
Buying Frenzy
 |
|
|
Mark Williams, Head of Equity Capital Markets
at UBS, says over-subscription of IPOs shows confidence is returning
|
|
Other major players that could push the city’s bourse into the record books include mainland real-estate developers Glorious Property and Evergrande Real Estate, which hope to raise more than US$1.5 billion each in their respective IPOs, and Macau casino operator Wynn Resorts Ltd, with plans to raise at least US$1 billion.
There are even signs of a buying frenzy. Interest in Sinopharm Holding Co, China’s largest drugs distributor, was said to be so strong that some potential investors were reportedly advised to arrive early for the 4 September road show to ensure that they would get seats.
The flood of Chinese money into Hong Kong does not surprise Ernst & Young LLP (E&Y), which tracks IPO pipelines globally. It said that the improved market stability evident in recent weeks has opened a window of opportunity for IPOs.
“There is renewed confidence throughout Asia, but particularly in Hong Kong, where liquidity has been increasing significantly since May,” said Terence Ho, E&Y Partner.
“With increased liquidity, together with recovery in the capital market and property sector, confidence generally comes back.”
It was expected that the Chinese mainland, relatively less affected by the financial crisis, would be the first market to recover, Mr Ho added. And Hong Kong is “always the preferred choice” for mainland companies to raise funds in, for a range of reasons, including cultural similarities.
In the Pipeline
| |
 |
|
|
E&Y Partner Terence
Ho believes that “about 100” IPOs may be in
the pipeline |
“Hong Kong has proximity to the mainland, and is English-speaking as well as Chinese-speaking. Importantly, Hong Kong has an international stock exchange, compared to the domestic exchanges of Shanghai and Shenzhen,” said Mr Ho. “These same reasons attract investors from around the globe to set up ventures in Hong Kong.”
No one knows for sure how many IPOs are in the pipeline, but Mr Ho feels “about 100,” speculated on recently, may be a fair estimate. By year’s end, E&Y expects Hong Kong’s IPO value to reach US$145 billion, about half of that achieved during the 2007 boom; no small feat, according to Mr Ho, considering the economic climate since then. As a result, E&Y has revised its 2009 outlook upwards from projections at the start of the year. Mr Ho recommends clients take advantage of the cyclical nature of IPO activity by preparing for opportunity when the market is down. Chinese companies, especially those that did not make it to listing in 2007, have been doing this.
The Hong Kong Stock Exchange has long been the hub of share trading in Asia, and with the economic tide bringing in a wave of new money, Hong Kong IPO activity is back in business.
Related links
Ernst & Young LLP (E&Y)
Hong Kong Stock Exchange (HKEx)
UBS
