Zhongyuan raises $1bn as HK clings to IPO crown hopes

14-Jul-2017 Intellasia | FT | 6:00 AM Print This Post

City’s listings lag behind the US, UK and China for the first time in three years

China’s Zhongyuan Bank will raise $1bn in an initial public offering that comes as Hong Kong bankers are pinning their hopes on a sharp upturn in business if the city is to maintain its crown as the world’s top listings venue for a third year.

The deal is the third $1bn-plus offering in Hong Kong so far in 2017, but new listings to date have raised just $7bn, according to Dealogic, leaving the city languishing behind the US, mainland China and London in the league tables. Hong Kong has topped the annual rankings for the past two years, in 2016 pipping China’s $24.8bn with $25.2bn to its credit.

New York last month enjoyed its busiest week in two years with 10 deals pushed out ahead of the July 4 bank holiday that usually marks the beginning of the summer lull. So far this year, IPOs on Wall Street have raised $28.2bn.

By contrast Hong Kong’s listings business typically picks up in the second half of the year. Hotly anticipated floats include that of Zhong An, the online Chinese insurer backed by Ping An, which is looking for up to $1.5bn, as well as Tencent’s online publisher, China Literature, which could raise $800m. Top of the list for Hong Kong could be the $10bn float of China Tower, the mobile tower operator for China’s three state-backed telecoms groups. The company invited banks to pitch in May.

Hong Kong stocks are this year enjoying their strongest performance in eight, with the Hang Seng up 18.4 per cent so far.

“The market for the last 12 to 18 months has not been easy in terms of achieving size or valuation,” said one equities banker, adding that the sluggish environment had helped lower executives’ pricing expectations. “It looks like the second half of this year is a window where we could get a better meeting point between issuers’ and buyers’ thinking.”

Zhongyuan Bank, based in central China’s Henan province, is the latest in a long line of Chinese financial groups to have tapped Hong Kong to shore up their balance sheets and raise funds for expansion.

The bank, formed in 2014 from the restructuring of 13 struggling institutions in the province, is an example of China’s efforts to consolidate its regional banking systems.

On Wednesday it priced its IPO at HK$2.45 a share after offering the stake at between HK$2.42 and HK$2.53. The deal raises $1.04bn, ranking it the joint second-largest deal this year with Guangzhou Rural Commercial Bank and behind Guotai Junan Securities, which raised $2.2bn in March.

Investor reaction to Chinese financials has at best been mixed. Shares in Jilin Jiutai Rural Commercial Bank, which raised $446m in January, have gained 15 per cent this year amid wider investor interest in the sector. Yet the banking rally has merely lifted Postal Savings Bank of China, which last year raised $7.4bn in the world’s biggest IPO in two years, to trade back at its offer price of HK$4.76 a share.

Bankers are hoping that the city’s anticipated listings will attract more interest from international investors than has been the case for the state-owned enterprises that have dominated its IPO calendar in recent years.

In addition to Zhong An and China Literature, investors have expressed interest in Razer, a gaming hardware maker backed by Li Ka-shing, Hong Kong’s richest tycoon. The group is looking for about $400m from a deal expected in October.

The IPO calendar is, however, missing two of its most anticipated deals in Lufax, the $18.5bn online financial platform controlled by Ping An, and Ant Financial, the $60bn payments affiliate of Alibaba. While neither had formally launched an IPO process, both have decided to put their plans on ice as they wait for regulatory developments in Beijing.

Zhongyuan’s deal is being led by Citic CLSA, JPMorgan, China Construction Bank and China Merchants Bank.



Category: Hong Kong

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