A Goldman Sachs’ top banker in Asia revealed that more than half of its IPO (initial public offerings) clients are considering a shift to Hong Kong from U.S. exchanges, blowing up a vogue of firms seeking to raise funds closer to home, South China Morning Post reported on Nov. 8.

According to Iain Drayton, Hong Kong-based co-head of investment banking for Asia excluding Japan, the main reasons behind this trend include increased geopolitical tensions between the U.S. and China, regulatory tightening by both Beijing and Washington this summer, and weaker institutional investor sentiment for American listings by Chinese firms.

On the one hand, a crackdown on the tech sector in China this summer, alongside new rules for overseas listings, has deprived investors and made several Chinese companies pause or rethink plans to list on New York this year.

On the other hand, the U.S. Securities and Exchange Commission (SEC) is asking for further transparency by Chinese companies—and, in some cases, Hong Kong firms—about their financial connections and potential regulatory risks presented by Beijing.

The SEC on Nov. 5 has just approved a framework to determine which US-listed Chinese companies will be delisted from American capital markets by failing to allow auditing inspection fully. Indeed, none of the roughly 270 Chinese companies listed on U.S. exchanges comply with the rule.

In this contradictory situation, Drayton said that Hong Kong is a safer venue for many Chinese issuers seeking foreign capital.

“While the U.S. will continue to be very attractive for Chinese companies, due to all of these factors, Hong Kong stands to benefit and already has,” Drayton said in an interview with the Post. “The trend will continue.”

“This does not mean the U.S. tap for Chinese issuers is turned off,” he added. “It remains appealing, but access will be sector- and name-dependent. In fact, we have a few things that will come to New York in the coming weeks or months. It’s just that the balance of activity is coming here.”

Where does Hong Kong stand in the league table?

According to financial data provider Refinitiv, Hong Kong ranked third globally for new stock offerings and secondary listings this year through October 29, with US$38.02 billion of proceeds. Nasdaq topped the list with US$76.6 billion, followed by the New York Stock Exchange (NYSE) with US$52.2 billion.

(SCMP/Screenshot via theBL.com)

The Shanghai Stock Exchange and its Star Market ranked a close fourth with US$36.9 billion in proceeds. The Star Market is expected to host the world’s biggest IPO this year as Syngenta Group, the Swiss agrichemicals behemoth owned by state-backed China National Chemical Corporation (ChemChina), goes public.


Bloomberg data shows that Goldman climbed one rung to fourth in Asia ex-Japan equity offerings this year through last week, garnering a 6.4 percent share of the US$332 billion of proceeds credited to deal managers. Citic Securities, Morgan Stanley, and China International Capital Corp led the league table.
Despite a weak third-quarter for new IPOs, there are positive signs for future listings in Hong Kong, SCMP added.


Last week, Nicolas Aguzin, the CEO of the city’s bourse operator Hong Kong Exchanges and Clearing (HKEX), said that the pipeline for IPO applications in Hong Kong stood at more than 200 at the end of September, one of the highest levels on record.

“Investors’ stomachs are full”

As more private enterprises in growth sectors in China go public, there is a “snowball effect” in which those companies tend to return to the market to raise more capital with follow-on deals, which is a good thing for Hong Kong, Drayton said.

Repeat issuance by companies in Hong Kong is at US$70 billion year-to-date, the highest level ever, compared with about US$50 billion in follow-on activity last year, he added.

“This evolution and the fundamental requirement for capital to fuel growth, means regardless of listing venue, after floating on the market, there is a need for follow-on issuance which has a snowball effect,” he said. “That backdrop, combined with the three factors driving a shift from New York to Hong Kong is creating an explosion of activity.”

However, uncertainty remains, particularly given the amount of issuance activity this year.

“A very good company, three to six months ago, would have commanded a premium valuation. As we get into Q4, where there has been such an explosion of issuance activity, investors’ stomachs are full and there is a little bit of fatigue and uncertainty,” Drayton said.

“There’s going to be a compromise and it is going to come in the form that is acceptable to those investors. Then, it comes down to the individual issuer and their appetite and comfort around valuation. If you’re going to say I need that premium valuation, it may make sense to wait.”

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