US president Donald Trump and the China hawks in his administration have been increasingly hostile towards Chinese issuers this year. But that has done little to dent market enthusiasm. Mainland-based companies, predominantly from the technology sector, have continued to float on New York’s stock exchanges while US investors have pumped billions into Hong Kong.
As a result, Hong Kong’s equity capital market, in particular, reached a point of frenzy in September, with billion-dollar trades a regular sight in the third quarter.
“It is extremely busy, I think this is going to be the busiest fourth quarter since 2007,” says a head of equity capital markets at a US bank in the city.
Ant is a big whale and it will suck up liquidity
Ant is in the mix with what could be the largest-ever IPO anywhere in the world – possibly bigger than Alibaba (at $25 billion) and even Saudi Aramco (at $29.4 billion). The company is targeting Shanghai’s Nasdaq-style Star market and the main board of the Hong Kong Stock Exchange for its dual listing. It is aiming for a post-listing valuation of between $200 billion and $300 billion, according to multiple sources close to the deal.
“Ant is a big whale and it will suck up liquidity, but not everyone who places orders for the IPO will get stock and the market is still flush with liquidity, so it will not be a problem,” says a senior capital markets banker at a Chinese investment bank.
Ant started life as Alipay, which is now its flagship app. Jack Ma’s Alibaba Group Holding created Alipay in 2004 to facilitate digital transactions at a time when credit cards were scarce in China. But with 1 billion users, the company has become a titan in mainland China’s finance industry in its own right.
Popular option
Ant’s listing structure is striking and is likely to become a popular option for large companies.
It is the first dual listing in Hong Kong and Shanghai through concurrent IPOs. Xiaomi Corp attempted a similar structure on a smaller scale in July 2018, but it ultimately failed to pull off the mainland part of the listing.
“This dual listing trend could continue based on policy support from the Chinese regulator for companies they like,” says a senior ECM banker with a European firm in Hong Kong. “Ant is getting the green light that others wouldn’t, or didn’t, such as Xiaomi for its listing.”
To float H-shares in Hong Kong and A-shares on the mainland concurrently requires approval from the China Securities Regulatory Commission and Hong Kong’s Securities and Futures Commission, as well as the HKEX and Shanghai Stock Exchange.
Didi Chuxing, a Chinese vehicle-for-hire company, is likely to take a similar route as Ant to listing. Didi, which includes an Uber-style ride-hailing service, has over 500 million users and a valuation of more than $100 billion.
“A lot of Chinese companies will look at doing concurrent share listings,” says the head of ECM at a US bank. “China’s regulators have tried to reform the Star market to enable this.”
But Ant’s offering is not the only type of dual listing attracting attention this year: there is also a trend for secondary offerings in Hong Kong.
Storm of demand
Shanghai-headquartered Yum China is the latest US-listed company to hold a secondary flotation in Hong Kong, bagging HK$17.3 billion ($2.2 billion) in the first week of September. As many as six more are expected on the HKEX by the end of 2020.
The hunger for Chinese names, particularly from the technology sector, has also spilled over into the debt capital markets. The NYSE-listed Tencent Music Entertainment Group sold its debut bond in late August in a storm of demand. The issue, which comprised a five-year tranche and 10-year tranche, received a flood of orders worth $13 billion.
This fervour is in no small part because people are trying to get business done before the US presidential elections in November, according to many market commentators.
“The volatility that comes with the election will not be a surprise,” says the ECM head. “The surprise will be whether there is an upside or a downside”.
As Trump goes head to head with democratic party presidential candidate Joe Biden from November 3, bankers predict around two weeks of uncertainty. And that, adds the ECM head, is “a time when no deal should be done”.