After years of holding the top spot for the amount of money raised from initial public offerings world-wide, Hong Kong’s stock exchange’s hold on new shares has dropped sharply this year.
So far in 2012, Hong Kong is in eighth place, with $1.4 billion raised through IPOs on its exchange, down from its position as No. 1 in the past three years, according to data from Dealogic. The Nasdaq Stock Exchange, New York Stock Exchange and Shenzhen-Chinext are currently in the top three slots.
Over the past 10 years, Hong Kong has held the top spot five times. In addition to 2009 through 2011, it raised the most in 2006 and 2007, while the New York Stock Exchange was in the lead from 2001 through 2005 and again in 2008, by Dealogic’s count.
Dealogic’s IPO data only count companies that are publicly listed on an exchange for the first time. The figures exclude listings of stocks that are already traded on other exchanges.
The Nasdaq Stock Exchange currently holds the No. 1 position world-wide, and if it finishes the year in first place, it will be the first time it has done so since 2000, when the market was at the height of the dot-com IPO boom, according to Dealogic.
There is a simple explanation behind Nasdaq’s sudden high ranking: Facebook Inc.’s FB -0.47 percent $16 billion offering pushed it ahead of exchanges it has previously trailed, ranging from the NYSE to Shanghai.
In Hong Kong’s case, there are multiple reasons why it fell in the rankings so sharply at a time when IPOs have been weaker around the world.
Although Hong Kong has had some success in attracting a broader base of listings from abroad, it primarily remains a China-centric venue, say attorneys who manage IPOs. And just as US investors have become more hesitant to buy Chinese IPOs in the wake of accounting and corporate-governance scandals, buyers in Hong Kong’s market are similarly jittery, leading to fewer public launches.
“Last year, Chinese issuers had a difficult time on multiple stock exchanges; due-diligence issues and questionable financial disclosure impacted issuers both in the US as well as on the Hong Kong exchange,” said Mark Mihanovic, a partner at McDermott Will & Emery who is the California-based liaison for the firm’s Shanghai law office.
Much of Hong Kong’s dollar volume has been driven in the past by the privatisation of Chinese state-owned enterprises, which are generally multibillion-dollar deals, although last year, the largest IPO in the world was from Swiss mining firm Glencore International
So far this year, there haven’t been any similarly large deals. Last month, UK-based jeweler Graff Diamonds Corp.
“Current conditions are not really conducive for issuers. The general world economic outlook is uncertain. Market sentiments can shift day by day, which makes pricing very difficult,” said Teresa Ma, a partner in Linklaters’s Shanghai law office.
Another theme working against Hong Kong’s rankings is the popularity of certain market sectors this year, says Virginia Tam, a partner in White & Case’s Hong Kong law office.
“The Hong Kong IPO market is not famous for its technology, media and commodities listings,” said Tam. “Its ranking tends to drop when these sectors are strong.”
Most attorneys said they believed the largest factor weighing on Hong Kong, as well as the rest of the world, is the global decline in capital markets, thanks to a variety of issues ranging from signs of slowing growth in China to the debt crisis in Europe. Investors are less likely to risk investing in an unproven new public stock when the broader markets are volatile or depressed.
“Investors will ask themselves, why take the chance of buying shares in an IPO when there are good opportunities in a number of companies that have been listed for years, and that have a proven track record of sustainable profitability and good corporate governance” said Leiming Chen, a partner at Simpson Thacher & Bartlett LLP’s Hong Kong office.
Since the year isn’t quite half over, it may be too early to label Hong Kong an also-ran in terms of IPO listings this year.
“All it sometimes takes is a few deals proving profitable for investors for things to come roaring back pretty quickly” in Hong Kong, said Christopher Betts, a partner in the Hong Kong office of Skadden Arps Slate Meagher & Flom LLP.
Indeed, a $6 billion dollar deal remains on file from Chinese state-owned insurer People’s Insurance Co. of China Ltd The company wants to list in Hong Kong and Shanghai.
“The best bet for success on the Hong Kong exchange, and something that could be seen as a harbinger of good things to come, would be a state-owned company completing a deal of significant size,” said Mihanovic. “In general, state-owned enterprises are more insulated from scandal-related issues that might otherwise make investors reluctant to participate. Having said that, state-owned companies are still going to look at the market and see that it’s down quite a bit. Without some broader market recovery, it might give them pause in terms of timing a deal.” http://online.wsj.com/article/SB10001424052702303822204577464263469270318.html
Category: Hong Kong