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| raised in Hong Kong in the first 11 months of 2011 |
"It’s like Noah’s Ark with China’s regulators," says a leading China-focused investment banker over coffee in Hong Kong’s Mandarin Oriental hotel. "They let their companies into Hong Kong two by two."
It’s hard to argue with his point. True to form, in 2011 there was a spate of sector-specific listings by Chinese corporates from across the worlds of financial services, clean technology and mining.
This year there will be more of the same, as natural resources companies, heavy equipment makers and clean-energy firms from the mainland seek to sell shares to global investors in Hong Kong, along with a smattering of financial plays.
The largest initial public offering of the lot, a $10 billion to $12 billion sale by banking-to-services conglomerate Citic Group, set to hit Hong Kong in the second half of 2012, is just the tip of the spear. It will grab the headlines, but other big sales will follow as China’s corporate leaders continue to spread their influence across the world.
IPO pipeline
Along with Citic’s weighty sale, bankers in Hong Kong are preparing for IPOs by mainland brokerage Haitong Securities, which pulled its $1.67 billion Hong Kong offering in December. Two construction equipment makers, Sany Heavy and XCMG, are likely to raise $3 billion and $800 million respectively after market turmoil forced them to shelve their listings in late 2011.
And others will follow. China Everbright Bank will seek finally to sell $500 million in new shares through Hong Kong this year. China Guangfa Bank, part-owned by Citi and formerly known as Guangdong Development Bank, is looking for a "good window" to complete a $5.5 billion dual Hong Kong-Shanghai listing.
Shanghai Fosun Pharmaceutical is also set to raise around $1 billion in a second-half listing, while several mining firms are also looking to tap the markets, including Inner Mongolia Yitai Coal and the Peruvian division of aluminium company Chinalco. Both sales are expected to raise $1 billion.
There is logic behind Beijing’s thinking – there is always. Since the genesis of 1980s’ capital market formation in China, Beijing has indeed acted like Noah, permitting its corporates to raise cash overseas as and when it decides. Bureaucrats at China Securities Regulatory Commission are less stock regulators than traffic policemen, deciding where and when their firms should list shares.
In the 1990s and early 2000s, Hong Kong listings helped break up, and instil competition in, a series of unwieldy mainland sectors, from telecommunications to oil and gas. Then came China’s state banks, floated in Hong Kong in a series of large (and sensibly distanced) IPOs after the state sucked out a lake of poisonous bad loans.
Beijing is hardly acting sui generis here. Singapore has historically promoted and listed local monopolies before pushing them on to the world stage, while South Korea spaces out debt listings by state bodies in much the same way. But only the People’s Republic has ever done it with quite the same sense of systematic purpose, and on such a grand scale.
This year’s list of 2012 mainland-Hong Kong listings is more nuanced, showing how far China has come, and where its immediate capital needs lie.
| "Clean-energy firms need capital, because they want to expand their operations in the mainland. Mining and engineering firms need capital because they want to go overseas. For Beijing, it comes down to which industry and which company needs the funding the most" |
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"Clean-energy firms need capital, because they want to expand their operations in the mainland," says Louis Wong, managing director at Phillip Securities in Hong Kong. "Mining and engineering firms need capital because they want to go overseas and make foreign acquisitions. Ultimately, for Beijing, it comes down to which industry and which company needs the funding the most." Hong Kong analysts also highlight niche sectors looking to raise capital in 2012, notably retail-specific firms from organic agricultural cooperatives to baby food.
This year will likely follow custom by starting slowly and speeding up. Mayfair Pacific Financial Group investment manager Nelson Yan believes the market will take time to recover in the first few months of 2012, following a series of last-minute IPO cancellations by such companies as Haitong Securities, XCMG and Sany Heavy. Also, Chinese New Year falls early in 2012, with the auspicious Year of the Dragon kicking off 15 days of celebration on January 23.
Wong admits that "2012 will be a tough year to complete IPOs – as tough as 2011 [was]". But Hong Kong will remain the bourse of choice for mainland firms – in the year to end-November 2011, more than $28 billion was raised by corporates in the city – and, increasingly, for global brands seeking to raise capital from Chinese investors. In May 2011, commodities trader Glencore raised $10 billion in a joint London-Hong Kong IPO; two months later, Italian fashion marque Prada raised $2.5 billion through a Hong Kong listing.
And so Noah’s Ark continues to float serenely on. Bankers and brokers in Hong Kong will continue to profit in 2012 from China’s desire to reach out to the world and, increasingly, the world’s desire to tap into the Chinese consumer. It’s a nice little set-up all round.
