The Strategist

Hong Kong competes for IPO with US exchanges

06/21/2018 - 16:46

The Hong Kong Stock Exchange has become a place that attracts some of the world's largest companies for an initial public offering of shares, CNBC reports.

Meutia Chaerani / Indradi Soemardjan
Meutia Chaerani / Indradi Soemardjan
While US markets are waiting for IPOs of Uber and Airbnb, three Chinese companies that are among the world's 20 largest Internet companies are expected to hold an IPO of more than $ 5 billion this year in Hong Kong.

Among these companies are Xiaomi, known as Chinese Apple, Meituan-Dianping, a Chinese operator of websites similar to Groupon and Yelp, and Didi Chuxing, who bought the Chinese business Uber.

China's state-owned enterprises - China Tower, specializing in infrastructure for mobile phones, and Sinopec Marketing, the subsidiary of China Petroleum & Chemical Corp. (Sinopec Corp.) - are also expected to hold a listing of more than $ 5 billion in Hong Kong this year, Renaissance Capital reported.

According to the Burton-Taylor report, Hong Kong Exchanges and Clearing revenues jumped by more than 18% last year. For comparison, Nasdaq's revenues grew by 6.6%, and income of the owner of the New York Stock Exchange ICE increased by 2.9%.

Western institutional investors are increasingly interested in opportunities abroad, while Beijing seeks to open its financial markets to foreign investors.

"In general, there is a huge struggle for capital," said MSCI Managing Director Sebastian Lieblich.

"Markets [will] become increasingly globalized, and emerging markets are aware that they can attract this money," he added.

New rules in Greater China can help increase the flow of capital.

In April, the Hong Kong Stock Exchange introduced new rules allowing biotech companies to apply for public offering without revenue or profit.

In June, Beijing adopted new rules governing issuance of securities to attract innovative companies to the mainland Chinese stock market. Under the pilot program, The China Securities Regulatory Commission (CSRC) will allow some Chinese companies whose shares are traded abroad to conduct a secondary listing on the domestic market by issuing Chinese Depositary Receipts (CDRs). CDRs’ development is similar to American depository receipts (ADR).

Nevertheless, the US keeps leading the IPO market. According to Renaissance Capital on June 13, the US this year is by far ahead of other countries in terms of the number of public placements and receipts in US dollars.

"We were beneficiaries of the delay in the growth of these [Chinese] exchanges," said Kathleen Smith of Renaissance Capital.

Yet, Hong Kong is moving from listing state-owned enterprises to IPOs of fast-growing high-tech companies, and mainland China markets are gradually evolving.

In the future, according to Smith, "Hong Kong and China together can become the largest market for an IPO."