City losing out in IPO race, time to woo quality candidates overseas
Updated: 2012-08-03 06:46
By Billy Mak(HK Edition)
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In the past few years, Hong Kong has been hailed as the number one Initial Public Offering (IPO) center in terms of fund raised. Almost every year, there were at least one or two multi- billion IPOs listed on the local bourse, underlining the city's importance as a major IPO center in the world.
However, the city will most probably lose its pole position and even the runner-up title in the IPOs game this year. According to the statistics released by Dealogic, Hong Kong only handled 44 IPOs as of mid-July, with total funds raised amounting to $5.54 billion, down 78 percent from a year ago. The current leader in this IPO activity is the US, through which 95 IPOs were issued and $31.925 billion raised, accounting for 44.3 percent of global IPOs deals this year.
China ranks number two, having handled 119 IPOs to raise $13.213 billion; number three position goes to Malaysia which raised $5.635 billion. However, it just has handled nine IPOs so far. Hong Kong is now in number four position. Unless the city handles more IPOs in the last two quarters of the year, Hong Kong will not be among the top three IPO centers in the world.
The lack of large, multi-billion IPO deals is largely to blame for Hong Kong's retreat from the IPO scene this year, plus a number of other. reasons. First, most giant mainland state-owned enterprises have already listed in Hong Kong; it is difficult to find a new HK$100-billion IPO these days, not only in China but also in the world. Second, the European debt crisis has affected the market sentiments this year, denting investors' appetite for new shares. Furthermore, the mega $16 billion Facebook IPO deal gave a major push to the U.S. in the IPO race putting it in the lead this year.
As Hong Kong adopts a free market approach for IPO listings, the sponsors are responsible to help companies to be listed on the Stock Exchange of Hong Kong, operated by the Hong Kong Exchanges and Clearing Limited (HKEx), as long as they have submitted the proper documents , fulfilled the listing requirements and complied with regulations. If the listing method is "Offer to sale" or "offer for subscription", the company needs to find underwriters to sell the shares. However, due to the bad market sentiment, companies may face difficulty in finding sufficient buyers and have to halt the IPO eventually. For an IPO bigger than HK$10-billion, so far only Hai Tong Securities (06837) has been successfully listed this year.
To improve HK IPOS' competitiveness, we cannot rely solely on mainland companies. To be a successful international IPO center, the HKEx has to also attract listing candidates from overseas, such as companies from countries that are rich in natural resources and developing countries, to diversify the sources. Besides the quantity, the quality of listed companies does matter, and the job of compliance becomes increasingly important. If we can protect investors' interests, develop our stock market's reputation, then investors' confidence will be built, eventually leading to better opportunities for Hong Kong when the market gets bullish in the future.
The author is Associate Professor at Department of Finance & Decision Sciences of Hong Kong Baptist University. The views expressed here are entirely his own.
(HK Edition 08/03/2012 page2)