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| First stop Hong Kong as China's big guns rush to list ( 01/12/2005 ) | |||||||||
"In 2006 and 2007 we will definitely continue to see a continuous stream of state-owned companies coming to list," said Richard Sun, partner at the capital market services group of PricewaterhouseCoopers (PwC). "Hong Kong has become a very popular platform for mainland companies to take on international funds to help them to broaden their capital base." CCB offered 26.5 billion shares in its IPO at HK$2.35 (US 30 cents) with the retail portion of the huge offering being 42 times oversubscribed and the institutional portion nine times oversubscribed. The IPO was the biggest since Kraft Foods raised HK$67 billion (US$8.7 billion) in a US listing in June 2001. But CCB's listing was only the latest in a string of big listings from China this year, which included the nation's biggest coal miner Shenhua Energy and the fifth biggest lender Bank of Communications as China rapidly transforms into a market economy. IPOs mainland-led The HK$150 billion (US$19.3 billion) raised from new listings in Hong Kong this year will extend an uptrend which began in 2001 and represent a rise of more than 50 per cent from last year's HK$95billion (US$12.2 billion). About 80 per cent of this year's total will be raised by mainland companies, estimated Mr Sun. Hong Kong's success story in becoming the prime capital raising centre for China's corporate giants has many different factors behind it, said Louis Wong, research director at Phillip Securities. Hong Kong has the rule of law and a mature judicial system that provides a channel for dispute arbitration, he said. "It is also a free port so you are free to remit funds in and out of Hong Kong." It is an obvious point but a compelling one. While foreign investors are keen to capture some of China's huge growth potential through equity portfolio investment, they also need reassurance that stock holdings can be easily liquidated and funds repatriated if need be. That also goes for the companies which are taking strategic stakes in the Chinese giants before they list. "If something goes wrong they can unload their shares in the stock market," Mr Wong said. Attractive trading platform Asian regional markets have historically been on relatively cheap valuations due to worries about corporate governance standards and the impact on profits from operating in a volatile economic and political climate. Even a relatively sophisticated market like South Korea trades on lowly single digit price-earnings ratios. But Hong Kong's stock market trades on a relatively high historic price-earnings ratio of 15 times due to its mature regulatory system, reputation for good corporate governance and stable exchange rate of the Hong Kong dollar, which is pegged to the US dollar. The higher valuation accorded to companies in Hong Kong makes it more attractive for them to come and list in the city, Mr Wong said. Even though the benchmark Hang Seng Index is well below its all-time high, the spate of big new listings has pushed Hong Kong's stock market capitalisation to a record HK$7.5 trillion (US$0.97trillion) this year. It should hit HK$10 trillion (US$1.2 trillion) in the next few years, said Mr Wong. There are not just financial benefits for mainland companies listing in Hong Kong - it can also help them compete on the world stage, a pressing need as China meets its World Trade Organisation entry commitments. "Another motivation for these companies coming to Hong Kong is because the central government would like these companies to improve their corporate governance," said PwC's Mr Sun. "Hong Kong is helping these companies to raise funds and is providing a platform for them to go overseas." Once they are listed, mainland companies have to answer to their new minority shareholders including fund managers and other institutional investors. The stress now is on boosting shareholder returns, a novel concept for many state-owned enterprise executives more used to the old command economy system. Many more to come Though Hong Kong's stock market already boasts listings by China's top energy, telecoms, insurance and airline companies, there are still plenty more to come, said Ashley Alder, a partner at law firm Herbert Smith, which advised China Construction Bank on its listing. Next on the agenda is Dongfeng Motor Group, which plans to raise up to HK$4.6 billion (US$590 million) and list in Hong Kong in early December. Then next year two more of the Big Four lenders - Bank of China and Industrial and Commercial Bank - hope to raise billions of US dollars with Hong Kong flotations. Further out there are plans to list China's national electricity grid, its railways and Shanghai port operators, said Mr Alder. The key to bringing in more listings is Hong Kong's critical mass of highly skilled executives from across the investment banking, broking, legal and accounting industries, which can ease even the largest and most complicated deals. "It's basically a concentration of professionals. People are headquartered here and they like to live here," Mr Alder said. Related links | |||||||||
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