By Leslie Richardson
The Hong Kong market, well-known for its opportunities to invest in leading Chinese players, continues to be the platform for mega deals with six companies raising over a billion US dollars in 2014. Total funds raised in Hong Kong were $29.3 billion, 80% of which came from mainland companies; ranking the exchange as the second highest IPO funds raised behind New York which raised $73.4 billion, according to Dow Jones. Furthermore, the Hong Kong Stock Exchange (HKEx) ended the year with several record highs including 96 main board listings up from the benchmark of 94 set in 2010 and fundraising in post-IPO shares reached $91 billion, surpassing the 2010 record of $52 billion. Despite concerns about the global economy, the momentum for mega deals is not showing any signs of slowing as a number of billion dollar deals have already been announced for 2015. PwC expects 120 new companies to list in Hong Kong this year raising up to $26 billion - 100 on the main board and 20 on the GEM board. While PwC forecasts that small-and-medium-sized companies will dominate Hong Kong’s IPO markets in 2015, the company expects several jumbo IPOs to fuel another strong year. Similarly, KPMG forecasts an estimated 110 IPOs raising over UD $25 billion in 2015.
Mega listings expected for the year include:
-- GF Securities, one of China’s largest security firms, currently listed in Shenzhen, China, with a market cap of $22 billion, ranks third in terms of net assets and fourth in terms of total assets is looking to raise more than $1 billion in Hong Kong. The firm is targeting to initiate the share sale in March of 2015. GF Capital (Hong Kong) and Goldman Sachs Group have acted as joint sponsors for the sale.
-- SOE China Railway Signal & Communication Corp. (CRSC), China’s biggest provider of rail traffic control systems, is planning to raise about $2 billion from an initial public offering in Hong Kong. The company is expected to benefit from the Chinese government’s move to accelerate 300 infrastructure projects valued at a combined seven trillion yuan ($1.12 trillion) this year and the central government’s support of an overseas expansion of China’s railway companies.
-- China Huarong Asset Management Co., China’s biggest bad-loan manager, is planning to raise up to $3 billion in Hong Kong by the third quarter. Citigroup, Goldman Sachs, HSBC and ICBC International were named initial sponsors of the proposed IPO. China Huarong is going public at a time bad debts are rising amid an economic slowdown in China. In 2014, China’s GDP was 7.4%, the slowest in 24 years. Many investors believe that the slowdown will benefit the company as non-performing assets increase over the next few years.
-- Beijing-based insurer Taikang Life Insurance Co., is expected to seek more than $2 billion from a Hong Kong initial public offering. Taikang Life Insurance, backed by Goldman Sachs Group Inc., is the nation’s fifth-biggest life insurer and is known for its investment performance and product innovation.
-- State-owned oil giant, Sinopec, is looking to raise more than $5 billion by spinning out its 30,000 gas stations and 23,000 convenience stores spread throughout China in an IPO which could be one of Asia’s biggest in 2015. The Hong Kong IPO will be a big step in the company's mixed-ownership reform encouraged by the central government to reinvigorate the State-owned sector.
-- Legend Holdings Corp (IPO-LEGH.HK), the parent of the world's biggest maker of personal computers, Lenovo Group Ltd, plans to raise up to $3 billion in an IPO in Hong Kong in the second half of 2015.
-- Red Star Macalline Group, the largest national furniture retail chain in China, is looking to raise up to $1 billion in Hong Kong as early as the end of the second quarter.
-- Hangzhou Hikvision Digital Technology, one of the world's largest suppliers of video surveillance equipment and manufacturer of closed-circuit TVs for banks, schools and courts, is planning a share offering of up to $1.5 billion as soon as the second quarter of 2015.
Smaller IPOs planned in Hong Kong include Chinese trade and logistics company Nanxiang Holding which is targeting raising up to $300 million and Zhou Hei Ya Food which is planning to raise $500 million in the first half of the year. Zhou Hei Ya, based in Wuhan, produces cooked and marinated duck and goose meat products and operates snack food chain stores. Bank of Jinzhou Co., a lender in northeast China, is planning to raise about $600 million from an initial public offering in Hong Kong. Bank of Jinzhou was founded in 1998, has branches in 12 cities across northern and northeastern China and 246.7 billion yuan ($39.7 billion) of assets. Guolian Securities Co., the joint venture partner of Royal Bank of Scotland Group PLC in China, is planning to raise around $200 million in an initial public offering in Hong Kong. Guolian, was founded in 1992 and has more than 50 branches in major Chinese cities such as Shanghai, Beijing and Guangdong. It posted revenue of 1.02 billion yuan ($164 million) in 2013, up 24% from a year ago, while its net profit surged 181% to 264 million yuan ($42.3 million).
As of January 30th, thirteen companies completed their IPO with seven of the newly listed companies trading above their IPO price as of the end of the month. Top IPO performers include: Yat Sing Holdings (HK:3708) a building maintenance and renovation service provider in Hong Kong with a market cap of $230 million is trading up over 140% from its IPO on January 15th, Hubei-based marble mining company, Future Bright Mining (HK:2212) has a market cap of $55 million and is up over 45% from its IPO on January 12th and Target Insurance Holdings (HK:6161) with a market cap of $140 million is up 65% from its January 16 debut. Deson Construction International Holdings (HK:8268), a spin-off of Deson Development International Holdings (HK:0262) has a market cap of $35.6 million and is up 30% from its IPO on January 9th while SIS Mobile (HK:1362) with a market cap of $47.4 million is up 31% from its IPO on January 16th.
Regarding the newly debuted Shanghai- Hong Kong Stock Connect which allows foreign investors to directly trade Shanghai shares via the Hong Kong exchange for the first time, investor demand has been tepid with northbound capital significantly greater than the southbound stream. The average daily turnover for Northbound and Southbound trading under the Shanghai-Hong Kong Stock Connect program reached Rmb5.6 billion ($900 million) and HK$929 million ($120 million), respectively, between the program's launch on Nov 17 and Dec 31, 2014. Subsequently, officials from China Security Regulatory Commission (CSRC) are looking into ways to boost trading on the equity link as international investors are not yet familiar with China's securities rules. Despite the initial lackluster investor reception, the scheme is looked upon as a big step forward for the internationalization of the Renminbi as well as reinforcing Hong Kong’s position as a gateway to investment in China. Additional integration between China and Hong Kong is expected with the launched of a Shenzhen-Hong Kong Connect as early as the second half of 2015. The Shenzhen Stock Exchange which ranks in the top 10 exchanges globally by market capitalization is seen as an equivalent to NASDAQ with many next generation Chinese companies, including software, high-tech, and biotechnology stocks.
Editor's Note: Ms. Leslie Richardson has over 20 years of investment management and equity research experience. She operates a boutique investor relations firm in Hong Kong for Asian companies listed in the U.S. and Hong Kong. She also assists private companies develop investment material and build an investor following in preparation for a public listing. Additionally, she is the Asian Correspondent for MicroCap Review, a financial magazine focused on mircocap companies. Previously, she worked for CCG Elite in assisting Asian-based, U.S. listed clients formulate key communication strategies. Ms. Richardson began her investment career at U.S. Trust Company then went on to join Odyssey Advisors as a portfolio manager and Director of Research. Ms. Richardson specialized in high growth sectors such as bio-tech, alternative energy, IT and telecommunications. She earned her M.B.A. from the University of Southern California. Ms. Richardson is based in Hong Kong.
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