Hong Kong’s rapid rise to the top

Hong Kong’s stock exchange became a serious player in 2010, taking over from the US as the world’s biggest IPO market. Hong Kong’s attempts to attract foreign business may take time to bear fruit, but with China on its doorstep, there will be plenty of business in 2011. Louisa Burwood-Taylor reports.

  • 14 Feb 2011
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More than $130bn was raised on the Hong Kong stock exchange in 2010, including initial public offerings, convertible bonds and block trades, according to Dealogic. That included $53.2bn from IPOs, pushing Hong Kong ahead of IPO volumes across all US exchanges.

There were $44.5bn of IPOs in the US last year, around $34.7bn of which were on the New York Stock Exchange. In 2009 the US market had $27bn of IPO volumes, against Hong Kong’s $24.2bn.

Hong Kong’s leapfrogging of the US shows how quickly it is blossoming as a global equity hub — attracting companies from around the world as well as fast-growing Chinese corporations.

"Last year demonstrated the maturity of the market in Hong Kong," says Kelvin Leung, an equity capital markets syndicate banker at Credit Suisse. "It was a real test of the capital market’s sophistication and put into perspective the depth of liquidity available. It was a historic year."

There is little question which deals got the most attention from investors, bankers and analysts alike: the $22bn deal from Agricultural Bank of China (ABC) that was split between the Hong Kong and Shanghai exchanges, and a HK$138.3bn ($17.8bn) offer from insurance company AIA.

The importance of these two deals for Hong Kong’s IPO market is easily demonstrated: the average deal size, excluding ABC and AIA, was only $250m — down from $460m in 2007, according to Dealogic. With those two deals included, the average volume was $750m.

The two deals showed the demand available for issuers in Hong Kong’s IPO market. But an issue of such size can be a double-edged sword, and some bankers worried that the listings would weigh heavily on the wider market.

It is reassuring that these fears were soon forgotten, and the market continued at a strong pace after these two deals were closed.

"These deals were so big that as an investor you had to play in them," says Sam Kendall, head of Asia ECM syndicate and global head of blocks at UBS. "There was a lot of visibility so investors knew when they were coming and put money aside especially for them."

Some bankers even argue that these deals increased demand for other equity offerings as those investors who missed out on their allocations decided that, rather than allocate money to other asset classes, they would look for other equity investments in Hong Kong.

Foreign furore

Hong Kong’s rise to be the biggest IPO market in the world was helped by heavy issuance from local and Chinese companies. But the market did not totally rely on China to fuel its growth, playing host to new listings from companies in countries that had never featured in Hong Kong before.

The first IPOs in Hong Kong from companies in Brazil, Luxembourg, Mongolia and Russia were sold last year — helping the exchange stake its claim as a global hub for equity capital raising.

"Hong Kong provides an excellent opportunity for issuers to tap Chinese money but it also provides an exchange where investors are confident in its regulation," says Marshall Nicholson, head of equity capital markets at Bank of China International.

The mix of a strong regulatory environment with an investor base more than used to emerging market deals makes Hong Kong a near-perfect place to list for companies from across the emerging markets.

Russian mining companies UC Rusal and IRC, Mongolian Mining Corp, L’Occitane International, the French beauty product manufacturer based in Luxembourg and Sateri, the cellulose maker with most of its operations in Brazil, all successfully listed in Hong Kong last year, while Brazilian iron ore producer Vale listed Hong Kong depository receipts. Many more foreign names are expected in 2011.

Four of the foreign companies that listed in Hong Kong in 2010 were miners, and bankers expect that sector will become a bigger part of the new listing market this year.

The Hong Kong stock exchange changed its listing rules with Chapter 18: an amendment which relaxed requirements for mining company IPOs. It loosened rules on both the financial track record mining companies need to list and allowed early-stage exploration companies — those without identifiable mineral or oil reserves — to qualify. The new guidelines should attract more mining companies to Hong Kong.

But most bankers think that foreign companies need a Chinese or Hong Kong angle to tap the local investor base. Foreign miners from around the world have approached bookrunners, hoping to list on the exchange — but many of these have been told that the market is not quite right for them.

"To sell a foreign miner with no obvious Chinese interests into China isn’t impossible, but it will take a lot of intense marketing and time," says one syndicate banker. "We have turned away more than we have taken."

Still, bankers say they have mandates from Brazil, France, Kazakhstan, Russia, South Africa and the Middle East. Most syndicate and origination officials expect resources companies will dominate foreign listings in Hong Kong this year — but infrastructure, consumer and industrial sectors are also a big part of the line-up.

Italian fashion company Prada is one name bankers are mooting, and could provide an early test of continued demand for foreign companies listing in Hong Kong.

Changing competition

The increasing size and international nature of Hong Kong’s stock exchange has caused a big rise in competition among global banks, reflecting a trend across Asia.

"Competition has been fierce this year with strong local houses and commercial banks muscling in where the bulge bracket banks used to dominate," says Mark Warburton, head of ECM syndicate at Macquarie Bank.

The number of bookrunners involved in IPOs last year increased to 46 from 36 in 2007, 29 in 2008 and 36 in 2009. Banks like Barclays Capital and Nomura — neither of whom are traditionally strong players in Hong Kong equities — have moved into the market, alongside smaller firms like Piper Jaffray.

Bankers expect the market to be even more competitive in 2011. There will be fewer landmark deals to capture investors’ imaginations, but a likely increase in the number of transactions means there should be plenty of business to go around.

"The number of IPOs in the region will increase this year, but mega transactions like those we saw last year are not likely to dominate as much as they did in 2011," says Ken Poon, head of capital markets at Citigroup.

Rusal: failure or bump in the road?

Russian mining company Rusal raised HK$17.4bn ($2.2bn) at the start of 2010 but only after overcoming strict limits on who was allowed to buy the deal — limits that tested demand for foreign companies in the market at the very start of the year.

Rusal’s listing showed Hong Kong could compete with other global exchanges and attract big foreign companies. But the deal is more likely to be remembered for the Hong Kong’s regulator’s decision to block retail investors from buying the offer.

Rusal became the first Russian company on the Hong Kong stock exchange, in January 2010. It first approached the exchange to approve the listing in November 2009 but the process dragged on until Rusal got permission — albeit with strict conditions attached.

Hong Kong’s Securities and Futures Commission deemed the deal too risky, and decided it should not be available to the general public. The regulator set a minimum order of HK$1m for any individual investor and stipulated that the stock would trade only in lots of at least HK$200,000, leaving it out of the reach of retail investors.

Bookrunners Bank of America Merrill Lynch, Bank of China, BNP Paribas, Credit Suisse, Nomura, Renaissance Capital, Sberbank and VTB Capital found demand for 1.6bn of shares to investors in the middle of a HK$9.10—HK$12.50 price range, attracting demand from over 300 institutional investors. But the stock fell 10.56% on its first day of trading, and some bankers worried that its poor performance would hinder supply from foreign companies.

The deal was expected to open the market to a wave of supply from Russian companies — but that supply that has not yet materialised. Rusal risked killing foreign issuance in Hong Kong’s stock market before it had even got off the ground.

Bankers on the issue defended its performance, comparing it with Chinese aluminium miner Chalco, which listed in 2001. Rusal has risen by around 10.37% since its listing, compared to Chalco, which fell by 8% in that time.

The same early weakness hurt investors in L’Occitane’s HK$5.5bn ($707m) initial public offering. The company’s stock fell on its debut by around 8.5% on its first day of trading, but it was up 44.6% at HK$21.80 at the end of December.

Hong Kong’s stock exchange has made big strides in attracting foreign companies to list. The troublesome listing of Rusal was far from a perfect start to 2010, but by the end of the year it was considered little more than a bump in the road.
  • 14 Feb 2011

Bookrunners of International Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 41,733.81 194 9.42%
2 HSBC 40,945.92 235 9.24%
3 JPMorgan 37,214.87 151 8.40%
4 Bank of America Merrill Lynch 29,284.07 123 6.61%
5 Deutsche Bank 20,416.10 78 4.61%

Bookrunners of LatAm Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 13,268.07 33 6.30%
2 Bank of America Merrill Lynch 11,627.56 29 5.52%
3 Citi 11,610.06 30 5.52%
4 HSBC 10,091.34 29 4.79%
5 Santander 9,533.17 25 4.53%

Bookrunners of CEEMEA International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 Citi 13,617.40 57 11.05%
2 JPMorgan 12,607.77 55 10.23%
3 HSBC 9,327.72 50 7.57%
4 Barclays 8,643.78 30 7.02%
5 Bank of America Merrill Lynch 6,561.15 18 5.32%

EMEA M&A Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 JPMorgan 195.08 50 10.55%
2 Goldman Sachs 162.26 37 8.77%
3 Morgan Stanley 141.22 46 7.64%
4 Bank of America Merrill Lynch 114.20 33 6.18%
5 Citi 95.36 35 5.16%

Bookrunners of Central and Eastern Europe: Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 UniCredit 3,966.12 27 13.01%
2 SG Corporate & Investment Banking 2,805.90 16 9.20%
3 ING 2,549.27 20 8.36%
4 Citi 2,526.98 15 8.29%
5 HSBC 1,663.71 16 5.46%

Bookrunners of India DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 19 Oct 2016
1 AXIS Bank 5,944.45 123 18.53%
2 HDFC Bank 3,792.05 100 11.82%
3 Trust Investment Advisors 3,390.86 145 10.57%
4 Standard Chartered Bank 2,299.63 31 7.17%
5 ICICI Bank 1,894.86 51 5.91%