HK retains hold as global IPO leader

Still No 1 in IPOs, but fundraising through stocks and bonds at record lows in Hong Kong

PUBLISHED : Monday, 28 March, 2016, 4:13pmSouth China Morning Post


Fundraising in Hong Kong hit the lowest level in a decade in the first quarter of this year as poor stock market performance hit companies’ plans to list or issue new shares, but the city still remains the largest initial public offering (IPO) market worldwide, according to Thomson Reuters data.


Brokers believe the worst is over, with a stock rebound likely in the second quarter.


“It was a really bad first quarter as the stock markets have been volatile from the beginning of the year while the yuan has devaluated against the US dollar. This has discouraged companies to list or make share placements, and investors have also lost appetite for dim sum bonds,” said Christopher Cheung Wah-fung, lawmaker of the financial services sector.


Falling yuan and worries over China’s slowdown pulled down the Hang Seng Index 10 per cent in January, followed by a drop of another 3 per cent in February, before bouncing back 6 per cent in the first three weeks of March. The benchmark index has thus wiped off all its gains last year.


Total funds raised in the city’s stock market in the first quarter stood at US$6.61 billion, down 45.9 per cent from the same quarter a year earlier, according to Thomson Reuters data. This is the worst performance since the first quarter of 2006, when just US$3.5 billion was raised in the city.


Among those that tapped the market, 14 companies raised US$3.48 billion in the first quarter through IPO, down 48.5 per cent from the first quarter of last year when 26 IPOs raised US$6.75 billion. This is the worst first-quarter IPO performance since 2013, which saw US$1.10 billion being raised.


“Many of the IPOs this year came from only small players. The big ones preferred to wait for the market to stabilise so that they can price their shares higher,” Cheung said.


Funds raised by existing companies in the first quarter through share placement, rights issues and other means stood at US$2.03 billion, down 62.8 per cent from the same period last year, making it the worst first quarter since 2006 when US$1.67 billion was raised.


The Hong Kong stock exchange, however, remains the top IPO market worldwide in the first quarter, the Thomson Reuters data shown. The local bourse was the largest IPO market worldwide last year as well, as it was from 2009 to 2011.


The Hong Kong Exchanges and Clearing (HKEx) ranked top worldwide in the first quarter at US$3.48 billion, followed by the London Stock Exchange at US$2.04 billion and the Tokyo Stock Exchange at US$900.4 million. Shanghai ranked fourth at US$600.3 million while Shenzhen Small & Medium Enterprise market came in at seventh with US$480.9 million and Shenzhen’s technology start-up board ChiNext at eighth with US$310.8 million.


“The Hong Kong market is not doing good but it appears other markets are not doing any better,” said Jasper Lo Cho-yan, chief executive of King International Financial


“Global market sentiment has been dented by the US interest rate rise in December that ended the zero rate era and led to fears of more rate rises and capital outflow from emerging markets.”


Besides the stock market, yuan-denominated bonds issued in Hong Kong also hit record low levels since their launch in 2011 as a result of yuan devaluation, which has affected investor appetite.


There were only 25 dim sum bond issues in the first quarter of this year, raising US$1.095 billion, down 90 per cent from a year ago when 181 issuers raised US$10.85 billion.


Lo said the yuan, which lost 5.6 per cent against the US dollar last year and 2 per cent in the first week of this year, has driven away investors. He is, however, upbeat on the second quarter.


“The stock market has stabilised of late while the yuan has also bounced back in February. The US Federal Reserve in mid-March said it would only increase interest rates two times this year instead of the four it had planned earlier. These factors would encourage more IPO and dim sum bonds issues,” Lo said.


In the first quarter, Zheshang Bank launched the largest IPO is China, raising US$1.69 billion, followed by Bank of Tianjin, which raised US$948.59 million. Both stocks will start trading on Wednesday.


Mainland Chinese companies remain the major sources of IPOs in Hong Kong, accounting for 92.4 per cent of the funds raised in the city, with the rest coming from local companies.


Haitong Securities led the first quarter in underwriting in Hong Kong, with a market share of 15 per cent and US$1 billion in related proceeds, followed by GF Securities with a market share at 9.3 per cent, and China International Capital with 6.8 per cent.





Chinese firms raise most funds in Hong Kong since 2010

Challenges ahead now that mainland has lifted IPO ban and plans to launch a new board in Shanghai

PUBLISHED : Sunday, 27 December, 2015, 4:25pmSouth China Morning Post


Mainland Chinese and Hong Kong companies raised the most funds in the Hong Kong stock market this year since 2010, with the total up 35 per cent year on year, according to Thomson Reuters data.


Analysts say they expect mainland Chinese companies will continue to tap funds next year for their international expansion but also warn that Hong Kong faces competition from mainland stock markets after October’s lifting of a ban on new listings. On Wednesday, the mainland authorities also announced they had approved the launch of a new board in Shanghai.


Equity capital market fundraising in Hong Kong totalled US$90.4 billion this year, the most since 2010’s US$109.4 billion.


However, the fundraising was not evenly distributed throughout what proved to be a bumpy year.


Hong Kong’s total equity capital market fundraising in the fourth quarter – including initial public offerings, listed company share placements and other equity fundraising – reaped US$23.7 billion in proceeds, up 96.3 per cent on the third quarter but down 3 per cent year on year.


But the fourth-quarter result was dwarfed by the record US$42.43 billion raised in the second quarter thanks to a stock market rally on the mainland and in Hong Kong that ran from April to early June, sending benchmark indices to seven year highs.


Louis Tse Ming-kwong, director of VC Brokerages, said many companies had been unable to proceed with IPO plans in the third quarter due to the market rout that followed the rally. The Shanghai and Shenzhen markets shed 30 per cent of their value in three weeks from their mid-June peak, while the Hong Kong market was down 20 per cent during the quarter.


“The market rout in the summer time was so bad that it was hard to sell any new shares,” Tse said. “When the market regained stability in the fourth quarter, many companies rushed to push their IPOs.


“A further delay of their IPOs to next year could have cost them a fortune because they’d need to do their accounting reports again if they were outdated.”


The 39 IPOs in the fourth quarter raised a total of US$12.19 billion, three times the amount raised by the 23 IPOs in the third quarter and also more than the US$10.77 billion raised by 24 IPOs in the second quarter.


The second quarter, however, saw more raised by company share placements, at US$31.25 billion compared with US$8.85 billion in the third quarter and US$9.86 billion in the fourth quarter.


For the whole of this year, Hong Kong had 80 IPOs that raised US$32.56 billion, up 9.3 per cent year on year and the highest annual total since 2010 (US$57.5 billion).


Hong Kong regained the crown as the world’s top venue for IPOs this year with a worldwide market share of 16.4 per cent, beating the New York Stock Exchange which had 53 IPOs that raised US$19.66 billion – a market share of 9.9 per cent.


London ranked third at US$17.97 billion while Shanghai was fourth at US$17.1 billion.


Hong Kong last topped the IPO rankings from 2009 to 2011. It lost out to New York last year after mainland e-commerce giant Alibaba opted to list in the US in September of 2014, raising US$25 billion. The Hong Kong exchange refused to grant Alibaba an exemption that would have allowed it to list with a structure under which its founder Jack Ma Yun and certain key executives would have been able to nominate most of the board members despite holding only minority stakes.


“The outlook for IPOs and share placements in the Hong Kong stock market remains cautiously optimistic,” Tse said. “Many mainland Chinese companies would need to raise funds to support their international expansion plans. The country’s one belt, one road plan will also lead to more fundraising for many infrastructure projects.”


Hong Kong’s IPO market was dominated this year by mainland Chinese companies, which accounted for 92.1 per cent of all funds raised. The rest was raised by Hong Kong-based firms.


“This was due to China having a four-month suspension of IPOs from July to October during the market rout,” Tse said. “The many Chinese companies which could not have IPOs on the mainland market during the suspension period shifted to Hong Kong.


“Hong Kong has to prepare to compete with the Shanghai and Shenzhen stock markets next year as the mainland has lifted the IPO suspension. In addition, it will introduce a new registration-based IPO system next year which will make it easier for mainland firms to have IPOs in the mainland markets.”


There are however, still some big mainland Chinese IPOs coming up next year in Hong Kong, including the mega IPO of Postal Savings Bank of China and other financial floats from China Merchant Securities, Everbright Securities, Orient Securities and Taikang Life.


Financial firms accounted for 60 per cent of the funds raised in Hong Kong IPOs this year, with mainland Chinese brokerage firm Huatai Securities’ second-quarter IPO the biggest, raising US$5.0 billion.


The top two listings in the fourth quarter were also mainland Chinese financial firms. China Huarong Asset Management raised US$2.5 billion in proceeds while China Reinsurance (Group) generated US$2.0 billion.


Morgan Stanley currently leads this year’s rankings for Hong Kong-listed stock market fund raising underwriting, capturing a market share of 9.5 per cent with US$8.6 billion in related proceeds.


In the bond market, Hong Kong dollar-denominated bonds raised a total of HK$94.0 billion this year, up 4.3 per cent year on year and the most since 2012.


Dim sum bonds raised just 19.8 billion yuan in the fourth quarter, down 8 per cent from the third quarter and the lowest quarter since the first quarter of 2011 at 17.6 billion yuan.





Reforms key to Growth Enterprise Market’s tech ambitions

Hong Kong market participants call for creation of new boards or relaxation of listing rules

PUBLISHED : Monday, 07 December, 2015, 2:03pmSouth China Morning Post


Market participants have backed the Securities and Futures Commission’s (SFC) plan to review the listing rules to improve the troubled Growth Enterprise Market (GEM) and make the city a more attractive listing destination for technology companies.


They want the regulators to consider creating a separate board, or changing GEM’s listing criteria.


SFC chairman Carlson Tong Ka-shing said last month there would be a review of listing rules in the city to address the many problems in the GEM, where the share prices of some companies have been volatile and many companies have been taken over for backdoor listings.


"Hong Kong has traditionally been a difficult place for smaller technology companies to raise capital through an IPO," said Allan Yee, a partner at global law firm Norton Rose Fulbright. "It would be helpful if the SFC considered allowing confidential filing and vetting for GEM board listings and for regulators to be less paternalistic in allowing technology companies to list. As technology is becoming an increasingly important sector in China and Hong Kong, the regulators in Hong Kong need to also update the listing rules to facilitate this new economy."


Yee said the United States had adopted the Jumpstart Our Business Startups Act (or JOBS Act) in 2012 which had made it much easier for smaller companies to raise capital there.


But while Hong Kong is on track to be the No 1 initial public offering market in terms of funds raised this year, it has been losing out to the US in terms of attracting listings by tech firms. E-commerce giant Alibaba and many technology firms have opted to list in the US, which allows companies to have a dual shareholding structure, which is banned in Hong Kong. Some mainland technology firms have preferred to list on Shenzhen’s ChiNext board or the new Third Board in Beijing, where they can list with a high price to earnings ratio.


GEM’s mission when it was launched in 1999 was to attract listings by technology firms and start-ups. It does not require companies to be profitable, while main board listing candidates need to have a combined profit of HK$50 million in the three years before listing. However, GEM has been a disappointment, with its turnover and market cap representing less than 1 per cent of the Hong Kong market’s total. There are only about 200 GEM companies compared with 1,700 in the main board.


Yee said listing on the main board and GEM was similarly expensive and time consuming, which made it hard for the second board to attract company listings.


"The sponsor-based regime in Hong Kong is geared towards making sure the company is ‘suitable’ for listing and not very flexible to take into account higher-risk companies merely through disclosure, unlike other jurisdictions such as the Nasdaq in United States," Yee said. "This means the procedural requirements to list on the main board and GEM board are substantially the same."


He said the regulator should change the approach to focus on disclosure instead of the suitability of companies.


Francis Leung, Pak-to, chairman of the Chamber of Hong Kong Listed Companies, said the regulator should consider introducing different boards to give companies and investors more choices.


"The SFC could keep the main board rules but it could launch different boards with different listing criteria and different listing rules," Leung said. "This would allow companies to choose to list on the markets that could fit their needs, while the investors could also have more choice of companies to invest in."


Edward Au, co-leader of the national public offering group at Deloitte China, said the vast diversity in business scale and operations among GEM issuers suggested a need for it to be restructured as a multi-tier market based on the issuers’ market cap, shareholder spread and operational performance. "This would provide a clearer picture to the investors on the profile of the companies listed on the GEM," Au said.


Brett McGonegal, chief executive of Reorient, said GEM could keep the mission of being a fundraising market for start-ups, but there should be rules and mechanisms to reduce volatility.


"This volatility is the crux of the listing issues many are facing in GEM," he said. "I think there are many guidelines and parameters that can help quell volatility and speculation but it’s a delicate, tough balance that needs to be achieved in order to keep a liquid market.


"Price controls and circuit breakers can be put into place so as to stop excess momentum and rampant speculation. I think ultimately start-ups and new listings will always breed volatility and the market and regulators need to get used to this characteristic and not over regulate and potentially end or severely restrict this incubation process."


Joseph Tong Tang, executive director of Sun Hung Kai Financial, said that even if the SFC changed the listing rules, technology companies might still choose not to list here.


"The technology companies can list with a higher PE ratio in the US or Shenzhen than in Hong Kong," he said. "As such, changing the listing rules may not be the solution."




Hong Kong races past New York to return as top IPO market for first time in four years

PUBLISHED : Thursday, 03 December, 2015, 4:53pmSouth China Morning Post


Hong Kong Exchanges and Clearing is on track to beat New York Stock Exchange to return as the top initial public offering (IPO) market this year, for the first time since 2011.


In the first 11 months of the year, Hong Kong had a 15.7 per cent market share of IPO funds worldwide, with 71 companies listing in the city raising a total of US$31.2 billion. That is already more than the full-year figure of US$29.7 billion raised last year, according to Dealogic data released exclusively to the South China Morning Post.


Hong Kong’s performance this year puts it far ahead of second-place New York, which has a 9.8 per cent market share with US$19.57 billion raised by 52 companies.


Hong Kong was beaten by New York last year after it lost the Alibaba Group’s record US$25 billion listing. With the e-commerce giant’s listing, the New York market saw US$74.18 billion of fundraising by 118 companies, compared with Hong Kong’s US$29.7 billion.


After Hong Kong and New York, Nasdaq is running third with US$17.46 billion and Shanghai fourth with US$17.11 billion. Shenzhen’s ChiNext, which has raised US$4.83 billion so far, is 14th.


“The strong stock market rally in the first half of this year allowed several large brokerage houses on the mainland to conduct IPO in Hong Kong. New York beat Hong Kong last year mainly due to the Alibaba deal. The tables have been turned this year,” said Joseph Tong Tang, executive director of Sun Hung Kai Financial.


Tong said he expects Hong Kong to remain on top of the IPO league table as many mainland firms will still need to raise funds in the city.


“Many mainland companies are in favour of listing in Hong Kong as the market has more international investors. In addition, the mainland IPO market is suspended from time to time. prompting mainland firms to opt for Hong Kong,” he said.


Unlike Hong Kong or Western markets, where companies decide when to go public, the China Securities Regulatory Commission controls the pace of listing and has suspended IPO eight times in the past two decades to tackle bear markets or in response to market malpractices.


The mainland market was most recently suspended between July and early November in the wake of the stock rout that saw market capitalisation in Shanghai and Shenzhen slashed by nearly a third from the mid-June peak.


The mainland IPO market had also been frozen for more than a year from late 2012.


Suspensions like these have worked well for Hong Kong, making it the top IPO market for three years in a row from 2009 to 2011. The 2008 financial crisis that severely dented Western markets and forced some companies – like Italian luxury fashion brand Prada – to list here also worked in Hong Kong’s favour.


Despite the good numbers, the quality of some of the new listings has been a cause of regulatory concern, however. Securities and Futures Commission (SFC) chairman Carlson Tong Ka-shing last month said the commission would review the listing regime.


Tong’s statement came after wild swings in some of the new stocks on the Growth Enterprise Market (GEM) and dubious backdoor listings.


It is mostly financial firms that raise money in Hong Kong, with the city failing to attract technology companies to list here. Alibaba opted for New York after Hong Kong regulators refused to allow it dual-class shares.


“The SFC review is likely to tighten up the listing process. This may cut down the number of new listings in Hong Kong. However, it would benefit the industry in the long run as it could allow the Hong Kong IPO market to develop in a more healthy way,” Joseph Tong said. “The SFC review could also seek ways of attracting more technology firms and start-ups to list here.”


Louis Tse Ming-kwong, director of VC Brokerage, said he believes IPOs may slow down next year.


“Many IPOs have not done very well as the market sentiment is weak. Stock market outlook in Hong Kong and the mainland has been affected by the slowdown of the mainland economy,” Tse said.


Bank of Qingdao, which debuted in Hong Kong on Thursday, was trading slightly down, after pricing the stock at the bottom of its indicative price range.




2015/16 Budget

On 25 February 2015, our Financial Secretary, Mr John Tsang, delivered his eighth Budget Speech for 2015/16.  The following are the highlights of the 2015/16 Budget.

@No change in tax rates
@Increase child allowance and additional child allowance from $70,000 to $100,000
@One-off sweeteners
@Reduce profits tax, salaries tax and tax under personal assessment for 2014/15 by 75%, capped at $20,000
@Waive rates for the first two quarters of 2015/16, quarterly capped at $2,500 for each rateable property
@Pay two extra months to recipients of CSSA/Old Age Allowance/Old Age Living Allowance/Disability Allowance
@Pay one month’s rent for public housing, except those required to pay additional rent and non-elderly tenants of HKHS’s Group B estates
@Short-term targeted support measures
@Waive license fees for travel agents, hotels and guesthouses, restaurants and hawkers and fees for restricted food permits for six months
@Waive vehicle examination fees for specified vehicles once within a year
@SMEs: Extend application period for concessionary measures under SME Financing Guarantee Scheme for one year
@Allow interest deductions for corporate treasury centres in Hong Kong and reduce profits tax for specified treasury activities by 50%
@Consider tax deductions for more types of intellectual property rights
@Extend profits tax exemption to private equity funds
@Step up exchange of information for financial institutions according to OECD standard
@Further issuance of $10 billion iBond


For detailed report from BDO, please refer to this link:

Regulators approve launch of Shanghai-Hong Kong Stock Connect

The Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) have approved the launch of the Shanghai-Hong Kong Stock Connect pilot scheme following the finalization of all necessary regulatory approvals and relevant regulatory operational arrangements required for its commencement。 Under the joint announcement issued by the SFC and the CSRC today, trading through the Shanghai-Hong Kong Stock Connect will commence on 17 November 2014.

"We welcome today’s announcement which is the result of close and intensive cooperation between the SFC and the CSRC over the past few months. In particular, the two regulators have established innovative and robust mechanisms in protecting the integrity of both markets when the pilot programme commences," the SFC’s Chairman, Mr Carlson Tong said.

The regulatory arrangements for the Shanghai-Hong Kong Stock Connect include a new benchmark for cross-boundary regulatory operation including the timely provision of client and order data to facilitate real time surveillance of market activity by the SFC and the CSRC for markets in Hong Kong and Shanghai respectively under the pilot programme. The two regulators earlier also entered into a Memorandum of Understanding on strengthening cross-boundary regulatory and enforcement cooperation under the pilot programme.

Euro, stocks slip as Greece set to reject austerity

The euro skidded to an 11-year low and stock prices fell on Monday as Greece's Syriza party promised to roll back austerity measures after sweeping to victory in a snap election, putting Athens on a collision course with international lenders.

The euro fell to an 11-year low of $1.1098 Eur on the vote outcome before recovering to $1.1186, still down 0.2 percent from last week.