BEIJING - With global
investors eager to take advantage of the Greater
China growth story, the average take of new
initial public offerings in the region now exceeds
that of IPOs in the United States and Europe,
according to the accounting firm
PricewaterhouseCoopers.
Historically most
IPOs in the region have been in Hong Kong, which has
benefited from the lull in mainland IPOs the past
year while Beijing took measures to resolve the
"split share structure" of mainland companies.
With that lull coming to an end, however,
there has been concern that the imminent
resumption of mainland IPOs would dilute Hong Kong
listings; however, analysts say these concerns are
unjustified, partly because
of attractive upcoming IPOs such as that of the
Bank of China, whose Hong Kong IPO, expected this
year, is anticipated to be the largest in Hong
Kong history.
China IPO takes now
world's highest The average amount of money
raised for every IPO in Greater China - mainland
China, Hong Kong and Taiwan - surpassed
European and US markets last year, according to
research by PricewaterhouseCoopers. Hong Kong
remained the largest fundraising hub in the
region.
The average money raised per IPO
surged in Greater China to US$260 million in 2005,
up 214% from $83 million in the previous year. The
figure exceeded the combined average amount per
IPO raised on the Nasdaq and the New York Stock
Exchange (NYSE) in the United States, which
dropped to $170 million last year from $220
million in 2004.
"China's sound and steady
economic growth continues to attract international
funds into the capital markets in the region,"
said Frank Lyn, China market leader at
PricewaterhouseCoopers. "Besides, the decision of
some mega-sized mainland enterprises to list in
Hong Kong, instead of considering a dual listing
in other overseas exchanges, also contributed to
the increase."
In terms of the total sum
of money raised through IPOs, however, the US and
European markets, including exchanges in the
European Union plus Switzerland and Norway, were
ahead of the Greater Chinese markets in 2005. IPO
funds raised in mainland China, Hong Kong and
Taiwan last year totaled $25.57 billion, which was
43% of the $60 billion raised on European markets,
and 79% of the $32.08 billion raised on US
markets.
Mainland IPO resumption won't
impact Hong Kong According to Edmond Chan,
a partner at PricewaterhouseCoopers Capital Market
Services Group, mainland China's resumption of
IPOs in the second half of this year will have a
very limited impact on the listing frenzy in Hong
Kong.
"Companies choosing Hong Kong to
launch their IPOs aim to attract more
international investors and improve their
publicity in the international arena," Chang said,
adding, "Due to its well-established financial and
legal systems, geographical proximity to the
mainland and good corporate governance standards,
the Hong Kong stock market continues to be seen as
the major international fundraising platform by
mainland enterprises."
Among the total
amount of money raised through IPOs in Greater
China, about 97% of the money was raised in Hong
Kong, which separately was the world's
fourth-largest fundraiser in 2005.
The
number of new listings in Shanghai and Shenzhen
decreased, mainly as a result of share segregation
reform in the Chinese mainland. Only three IPOs in
Shanghai and 12 in Shenzhen were seen in the first
half of 2005, and there were none in the second
half of the year.
Looking ahead to the
next 12 months, Lyn estimated that money raised
through new IPOs in Hong Kong would likely reach a
record high of HK$200 billion (US$25.6 billion)
raised this year with the projected average
price-per-earnings ratio hovering around 10 to 15.
"We expect to see sizable and quality
listings in 2006," said Lyn. "There is a strong
pipeline of companies with powerful financials,
with the major force coming from mainland-based
financial services and logistics companies."
Other analysts agreed that mainland
China's resumption of new share issuances on May 8
will not affect Chinese companies' listing frenzy
in Hong Kong in the short term, defusing worries
of a possible decrease in the number of listing
candidates there. They cite Hong Kong's position
as a regional financial hub and a raft of
incentives that have been driving the local market
to new highs as their reasons.
"Hong Kong
still has a monopoly position in the region" as a
fundraiser, said Andes Cheng, associate director
of South China Research Ltd.
The special
administrative region's mature financial system,
abundant international capital and accelerated
economic integration with mainland China have
helped it to become the first-choice destination
for Chinese firms that seek alternatives to the
yuan-denominated A-share markets in Shanghai and
Shenzhen. That advantage will not wither for at
least two years, Cheng said.
Hong Kong was
the world's eighth-largest bourse in terms of
capitalization by the end of 2005 and Asia's
second-largest.
The recent lasting
bullishness of the Hong Kong market is another
factor that might be luring companies seeking
listings. By comparison, mainland markets are
still lagging behind and will probably take some
time to become more active.
Companies
eager to sell shares on mainland bourses will be
those that have already traded their shares in
Hong Kong, said Tang Sing-hing, associate director
with Tung Tai Securities. But that won't weaken
Hong Kong's attraction. He said those Chinese
firms with Hong Kong-listed H shares will jump at
the chance to float shares at home, where they may
get a higher price-to-earnings ratio.
Hong
Kong has witnessed a listing boom from Chinese
companies since the mainland suspended new share
issuances a year ago prior to its reforms to float
the non-tradable shares. China is in the process
of altering its stock market from one where the
majority of equity ownership of listed companies
is in the hands of the state or state-owned
institutions.
In 2005, Hong Kong saw 70
companies listed, involving a record HK$192
billion in IPOs. Mainland companies realized 80%
of this total. The listing fever has shown no sign
of abating this year. Already 12 mainland
companies have gone public in Hong Kong in 2006,
and media reports suggest more than 20 others are
preparing to do so.
BOC 'road show'
attracts attention The Bank of China (BOC),
the second-largest of China's Big Four state-owned
commercial banks - the other three are the
Industrial and Commercial Bank of China (ICBC),
China Construction Bank (CCB) and the Agricultural
Bank of China - is attracting a lot of buzz as it
kicked off a marketing road show last week in Hong
Kong for its HK$78.4 billion (US$9.8 billion)
share sales.
The IPO, which analysts say
would hit the Hong Kong stock market with a bang,
is expected to be the largest offering ever
launched by a mainland company, surpassing China
Construction Bank's US$9.2 billion.
BOC is
selling 25.57 billion H shares, or 10.5% of its
enlarged share capital, at a price between HK$2.50
and HK$3.00, according to a preliminary
prospectus. The price values the lender at 1.9-2.2
times its book value, which is at least 15%
cheaper than rivals CCB and Bank of
Communications. The two made their IPOs in Hong
Kong last year.
"The pricing is pretty
reasonable and will attract investors," said
Kingston Lin, Prudential Brokerage's associate
director. The money used to subscribe BOC shares
will amount to more than US$25 billion, he
estimated. The Bank of China's shares will be
covered "more times than that of China
Construction Bank", Lin said.
Another
factor that will make BOC popular is its high
dividend payout ratio, which stands at 35-45%,
said Lai Wai-shing, Hantec Investment's associate
director. "[The] BOC will certainly drive the
market sentiment high," he said.
The ICBC,
the largest of the Big Four, also plans to launch
its IPO in Hong Kong this year.
