Mega listings propel HK towards top spot (hktdc.com)


	As the market of choice for the public listing of Chinese mainland companies, Hong Kong Stock Exchange is racing up the world rankings

The record amount of funds raised by new listings on Hong Kong's stock market this year will, for the first time, put it in the running against London and New York for the global top spot.

Blockbuster deals such as Bank of China's US$11 billion June initial public offering (IPO) and ICBC, which raised US$16 billion in Hong Kong as part of the world's biggest IPO, are putting the city into the financial big league.

Hong Kong has raised at least US$34.8 billion in IPOs year to date. That is already well above the US$21 billion in IPO funds raised in 2005, itself a record year.

New listings on London's exchanges have raised about US$40 billion and New York's bourses so far trail in third place with about US$30 billion, with the contest likely to go down to the wire.

"This year is a special year. We have had so many big deals," said Y.K. Chan, a fund manager with Phillip Asset Management.

World beater

If share placements and other forms of capital raising by already listed companies are factored in, Hong Kong would likely be a clear global winner even now, given China's companies are rapidly expanding in line with the mainland's economy and have large capital needs.

Large equity fund-raising exercises by companies which are already listed tend to be far less common in London and New York, where managements prefer tapping debt markets.

Total equity funds raised in Hong Kong to the end of October are US$49.6 billion, according to HKEx figures. Some large Hong Kong corporations, such as Henderson Land Development, have also tapped the buoyant stock market in recent weeks as they seek to expand their presence in China.

Despite the large fund-raising exercises, the Hang Seng Index has posted a series of record highs, reflecting huge demand by global investors to access China's growth story through the Hong Kong market.

The success of Hong Kong has been such that the city was cited along with London as a threat to the global predominance of New York as a financial centre. In a widely quoted Wall Street Journal article on November 1, New York Mayor Michael Bloomberg and Charles Schumer, the Democrat New York Senator stated: "It is not only London we need to worry about. Next year, more money will be raised through IPOs in Hong Kong than in either London or New York."

The main theme of the article was to urge a rethink of the tough regulatory climate in the US which is causing companies to look elsewhere when they are seeking to raise capital.

Winning formula

Hong Kong's formula for China IPO success has been simple, said Ernest Ip, who heads the capital markets group in Hong Kong for accountants PWC. It's based on a shared culture and geography and a regulatory environment which strikes a balance between issuers and investors.

"It's the close ties we have with China. When China does privatisations, the first choice is going to be Hong Kong," Mr Ip said. "For the US, the cost of compliance is so high."

Beijing is keen to see Hong Kong thrive as a financial centre as the city is going to play a key role in the development of China's economy, adds Phillip Asset Management's Mr Chan.

"I think it is a policy of the Chinese government to support Hong Kong's financial decision. It is also a realistic decision because Hong Kong and Asian investors are more enthusiastic about Chinese companies."

Besides raising money, a Hong Kong listing can be a key restructuring tool for corporate China, which needs to rapidly move its corporate governance towards global standards.

Rush to list

The rush to list in Hong Kong is partly "because of China's need to reform with things like the WTO [happening] and engage the world," said Ashley Alder, who heads the corporate practice at law firm Herbert Smith.

"The banks have to get their act together and they are very large institutions. Hong Kong is now a market which is there for China."

"They don't list in New York for the reason that they find the regulatory environment is too [onerous]."

"Secondly, there is enough liquidity in the Hong Kong market to absorb these listings."

The volume of future deals is likely to be even higher, as next year's IPO calendar is already filling up with a host of new issues from China coming to the Hong Kong market.

Planned flotations include a US$1 billion IPO by China National Coal, the country's second biggest coal miner; a similar-sized deal from China Pacific Insurance, the mainland's second biggest non-life insurer; and the US$2 billion listing of China CITIC Bank, the seventh largest bank.

Bigger deals from China's railways, its power grid companies and the last of its Big Four State lenders, The Agricultural Bank of China, are in the works, though they are more likely to take place from 2008 onwards than next year.

Growth potential

"I believe the potential for our markets to grow remains significant. The best is by no means over," said Ronald Arculli, chairman of market operator Hong Kong Exchanges and Clearing in a speech to the American Chamber of Commerce.

While the Shanghai and Shenzhen stock markets have re-opened for IPO business after the completion of a share reform programme, Hong Kong will retain an important role, Mr Arculli said.

"Just as New York is the international financial centre of the US and as London is for Europe, I believe Hong Kong will continue to develop as China's international financial centre. With China's economic development and growth, there is room for more than one financial centre in the country, even after the renminbi (yuan) becomes freely convertible."

Longer-term, Hong Kong is looking to build on the success of its financial markets by widening its appeal to issuers overseas, the city's Chief Executive Donald Tsang has said.

"We should quickly amend existing listing rules to enable well-established and qualified foreign enterprises from different parts of the world to list in Hong Kong," Mr Tsang said in his annual policy address.