Investors came out in force to help Hopewell Highway raise Rmb386.4m ($61.9m) last week, many of them swapping money with the Hong Kong stock exchange to take part. That eventually led to the deal being more than 20 times covered.
It was undoubtedly a landmark deal in the development of offshore renminbi ECM, but that says more about the embryonic state of the market than it does about the transaction. The successful deal came at the same time as Dynasty Reit was scrapping its own partly-renminbi listing in Singapore.
But even Hopewell’s apparent success shows how much progress the offshore renminbi ECM market still has to make. The company had to put in a lot of work to raise its $62m.
Hopewell, which was also the first corporation to issue a dim sum bond, worked closely with Hong Kong exchange officials in the run up to the deal to ensure that it went smoothly. That time was not all spent on creating a trading counter for the new renminbi stock. The company also convinced the exchange to cut the settlement time of the block, from four days to two, reducing the risk to investors.
Bank of China and other custodian banks were also on call to provide currency swaps to participating investors without any deposits in the currency. This would have required mobilisation of FX traders throughout the day, and some collaboration between banks.
These two features have no doubt laid the groundwork for other issuers wanting to tap the renminbi block market, but they don’t ensure demand. Perhaps most importantly, Hopewell offered a chunky discount to make sure the deal got done.
The price range Hopewell came out with offered a discount of as much as 9% to its last trading price, a big discount considering the small size of the initial deal, which was only scheduled to be worth around Rmb225m. The deal was later increased twice, and priced in the middle — offering a 6.94% discount, and an 8% dividend yield — but there was still only demand from 30 investors.
Ideal opener
Even the most excited renminbi-watchers must admit that Hopewell was also an ideal name to open the market for offshore renminbi blocks. It is stable and well known to investors in Hong Kong and China — and it has a proven pedigree in the offshore renminbi market. Hopewell’s success does not mean much other potential issuers.
Dynasty Reit suffered an opposite fate in the same week and cancelled its Singapore IPO. But as with the Hopewell deal, most bankers admitted that the renminbi-denomination of some of the deal was irrelevant. It was the structure, not the currency, that made this deal fail, bankers said.
It is easy to draw conclusions from the contrasting fortunes of these two deals, and argue that Hong Kong has asserted its rightful place as the offshore renminbi market of choice for ECM. But it is too early for all that. Hopewell deserves to break out the champagne — but bankers and regulators should not be getting drunk on the success of one small deal.