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Every now and then a barometer deal comes around: one whose outcome shows the market what to expect. One such was Goodbaby China Holdings, set to be a deal that showed there was still scope to launch IPOs, even mainland Chinese IPOs, in Hong Kong, despite volatility.
Unfortunately, the deal for the baby products retailer pushed the barometer needle towards ‘rain’. Not since a little-remembered Chinese pork producer called WH Group ditched its listing in April 2014 has a Hong Kong IPO been withdrawn after launch. Morgan Stanley, the sole sponsor alongside BOCI Asia as an underwriter, clearly believed Goodbaby’s deal could get through the grim markets that have characterised the start of the year, but it was not to be. The company says its decision to pull the deal came “in light of deteriorating market conditions and recent excessive volatility.”
There is some grumbling in investment banking circles about the nixed IPO ending the chances of anyone else coming to market, but it didn’t tell anyone anything they didn’t already know: that this is an almost impossible environment to launch in.
Other IPOs have got away in Hong Kong in 2016, but mainly their marketing was underway before things really turned south at the start of the year. Many other IPO applications have been withdrawn, and some of the more exciting candidates, such as China Merchants Securities, have delayed their IPOs indefinitely.
If things are bad in the Hong Kong markets, they are worse on the mainland, where the volatility claimed the scalp of chairman of the China Securities Regulatory Commission, Xiao Gang, in February. Lin Shiyu, former chairman of Agricultural Bank of China and a one-time deputy governor of the People’s Bank of China, has been appointed in Xiao’s place to rebuild stability and credibility in the country’s markets.
Capital markets bankers may enjoy brighter times in the convertible markets though. In January, China Railway Construction Corporation (CRCC) launched a $500 million bond, the first H-share convertible since a Sinopec print back in 2007, and the very first under a new set of debt issuance rules from China’s National Development and Reform Commission in September.
JPMorgan, CICC and UBS were joint lead managers on the zero-coupon convertibles.
“We expect this deal to lead to a greater number of H-share issuers seeking to access a new source of funding in the international capital markets,” says Connie Heng, partner at Clifford Chance. Indeed, it has already been followed by a $600 million deal from Chinese rolling stock manufacturer CRRC.
Even in Hong Kong’s troubled equity markets, there are some brave souls willing to take their chances. As Euromoney went to press, marketing was underway for Union Medical Healthcare. The Hong Kong firm, known locally for its Canto-popstar spokeswoman Gillian Chung Ka-lai, is ranked first in the territory by number of breast augmentations, liposuctions and eyelid operations, according to its prospectus. Perhaps some things are recession-proof.
