Hong Kong’s IPO market: hot no more

Hong Kong may have reclaimed its spot in 2018 as the world’s biggest stock exchange in terms of funds raised, but if early indications for the 2019 first quarter are anything to go by, the bourse is in for a tough time.

  • By Jonathan Breen
  • 03 Jan 2019
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The Hong Kong Stock Exchange recorded HK$286.5bn ($36.6bn) in funds raised last year, an impressive 123% jump from 2017, to overtake the New York Stock Exchange.

That may be cause for some celebration but the victory has a hollow ring, given how turbulent 2018 was and how the city’s stock markets were, and are, roiling in volatility.

Most worrying of all is that the fears that drove markets down towards the end of last year show no signs of abating.

The US-China trade war, a deal or no-deal Brexit, inflation, rising US interest rates, and the recent standoff between US president Donald Trump and the Democrats that caused some parts of the government to shut down have made everyone cautious.

As always, equity investors are visible, but with listing hopefuls rightly anxious about taking the leap, there is little to choose from, with almost no IPOs in Hong Kong likely before Chinese New Year in early February. The only deal worth over $100m in the city so far is coming from Tencent Holdings-backed Weimob, which kicked off its IPO on December 31.

The company, which provides cloud-based commerce and marketing solutions, is looking for up to HK$1.06bn and is expected to be one of perhaps just two or three small flotations in January. Deutsche Bank and Haitong International are sponsoring the IPO and to drum up interest they have valued Weimob at an attractive discount to its peers and placed nearly a third of the stock with cornerstone investors.

The tactic is not entirely surprising. Given the shocking aftermarket performance of so many IPO stocks last year, it will to take some high-profile successes to get deals flowing again.

But this might be easier said than done. Issuers at the end of last year ended up slashing their deal sizes en masse to get listed. There are early signs that companies in the pipeline desperate for cash or needing to float as soon as possible may have to resort to the same strategy to push their deals over the finish line.

In addition, the predictions for Hong Kong this year are for a lot of small and medium-sized companies to go public. While this could bring an increase on the 218 listings in 2018, it could also mean a drop in deal volumes, with less than a handful of jumbo flotations on the horizon.

What can ECM bankers and investors do? This time last year things were looking rosy, with the Hang Seng Index breaking through 33,000 points by the middle of January to a record high, followed by a hype in the markets over new economy companies. Few could have predicted how the year would play out.

In contrast, 2019 opened with the Hang Seng’s worst trading start in nearly 25 years, with the index falling around 2.7% on Wednesday.

Needless to say, the market should prepare for a choppy year. But with such a fickle global political and economic environment, it’s anyone’s guess what is to come.

  • By Jonathan Breen
  • 03 Jan 2019

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 Bank of China (BOC) 23.56
2 Industrial and Commercial Bank of China (ICBC) 16.09
3 China Merchants Securities Co 11.38
4 Agricultural Bank of China (ABC) 6.90
5 HSBC 5.75

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 14 Sep 2019
1 Goldman Sachs 10,402.38 44 7.46%
2 CITIC Securities 10,076.72 56 7.23%
3 Morgan Stanley 8,137.73 53 5.84%
4 China International Capital Corp Ltd 7,629.46 48 5.47%
5 UBS 7,571.63 56 5.43%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 25,845.51 224 8.48%
2 Citi 19,878.62 143 6.52%
3 JPMorgan 15,342.51 106 5.03%
4 Standard Chartered Bank 13,851.25 136 4.55%
5 Bank of America Merrill Lynch 11,261.66 88 3.70%

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