Initial public offerings (IPOs) are returning to Hong Kong, as valuations have bottomed out after a dismal summer disrupted by the worst political crisis in the city’s history, underscoring the resilience of Asia’s financial hub as the go-to option for fundraising, said one of the largest local brokers.
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As many as 16 companies applied to raise funds on the local bourse in the first three weeks of September, increasing the number of active applications by 7 per cent to 231 in the year to date, according to data by the Hong Kong Exchanges and Clearing Limited (HKEX), the market operator. They are open to launch their IPOs, pending approvals by the HKEX.
“Many clients are returning to the market in September after a quiet summer,” said Kenneth Ho Shiu-pong, the equity market managing director at Haitong International Securities Company, which arranged 37 IPOs worth US$1.59 billion last year, and underwrote 28 fundraising deals valued at US$704.77 million this year. “Hong Kong remains the top fundraising destination for mainland Chinese and Asian companies that want to capture the international investors.”
Hong Kong’s economy is teetering on the brink of a technical recession, as three months of political rallies that began on June 9 have deteriorated into street mayhem and violence, causing property prices to plunge, forced visitors to stay away and crimped retail sales. Up to 10 of the city’s smallest brokers have shuttered, as dwindling transactions made it too expensive for them to maintain their operations, according to the industry’s association.
Still, the city’s benchmark Hang Seng Stock Index fell by 6.2 per cent at the worst of the crisis, recovering to a 2 per cent dip as at the end of Friday’s trading. That has been worse than Hong Kong’s previous political crisis during the Occupy Central movement in 2014, when the city’s central business district was almost paralysed by 79 days of sit-ins and protests.
“Hong Kong remains the top destination for IPOs, based on its strong fundamentals, despite a number of uncertainties affecting the market’s sentiment, and some IPO applicants adopting a more cautious, wait-and-see approach to proceed with their listings,” said KPMG China’s head of capital markets Paul Lau.
There were “positive signs from the number of main board deals in the first three quarters comparable to last year, and the number of new main board applicants in July and August increased by about 30 per cent,” KPMG’s Lau said. “Hong Kong is likely to remain in the top three globally in terms of total funds raised for 2019.”
Consumer stocks, biotechnology and telecommunications remained the darlings of international investors, according to Haitong’s Ho, adding that come clients – particular those with business models that are more likely to be better received in the US – would still prefer to list in New York. Haitong helped arrange Luckin Coffee’s US$561 million Nasdaq IPO in May.
View source version on SCMP (https://www.scmp.com/business/companies/article/3029949/initial-public-offerings-trickle-back-hong-kongs-stock-market)