Hong Kong eyes blockbuster China tech IPO queue

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Hong Kong bankers are eyeing a slew of blockbuster IPOs from Chinese technology firms with a total market capitalization of some 500 billion US dollars over the next two years, in a sharp contrast to 2017 - the city’s worst year for raising equity in a decade.

If bankers’ expectations are met, it would set up Hong Kong for a showdown with New York, the traditional host for the world’s hottest new-economy companies and Hong Kong’s closest rival for the global IPO crown.

Companies such as smartphone maker Xiaomi and wealth management platform Lufax are among those mulling multi-billion dollar listings in Hong Kong next year, encouraged by a late-2017 rush of tech floats.

Bankers estimate Xiaomi’s IPO could value the company at up to 100 billion US dollars, while Lufax was valued at 18.5 billion dollars in its last funding round.

“The expectation is that over the next couple of years there is probably upwards of 500 billion US dollars of market capitalization just in the tech sector in China that could go public,” said Tucker Highfield, head of equity capital markets syndicate for Asia Pacific at Credit Suisse.

Attendants are silhouetted in front of Xiaomi's logo at a venue for the launch ceremony of Xiaomi's new smart phone Mi Max in Beijing, May 10, 2016/Reuters

Some firms will still head to New York, whose acceptance of dual-class share structures is attractive for many technology companies. Meituan-Dianping, a Chinese online platform for ordering food and booking movies, is expected to choose New York for a float that could raise three billion US dollars.

But Hong Kong, the world’s biggest equity capital-raising center for four of the last 10 years, is looking to revive its appeal and this month announced plans to allow dual-class shares as it tries to attract Chinese tech listings.

Hong Kong raised 32.8 billion US dollars in equity capital in 2017, the lowest since 2008 when fundraising dried up during the global financial crisis.

Of this, IPOs accounted for 10.9 billion US dollars, or just more than half 2016 levels, leaving Hong Kong ranking fourth globally for 2017, behind the New York Stock Exchange, Shanghai Stock Exchange and Mumbai’s National Stock Exchange.

Distracted investors

Bankers and investors said the dominance of Wall Street in the first half of the year, when a series of record closes for benchmark indices grabbed headlines, distracted global investors from an even stronger rally in Asian emerging markets stocks.

A Chinese national flag flutters at the headquarters of a commercial bank on a financial street in central Beijing, China November 24, 2014/Reuters‍

Hong Kong's blue-chip Hang Seng Index HSI has gained 35 percent this year - its best performance since 2009. MSCI's broadest index of Asia-Pacific shares outside Japan has risen over 32 percent.

The city was also hit by the timing of some giant floats, such as an IPO of up to 10 billion US dollars by China Tower, the world’s largest collection of telecoms towers, that was expected in 2017 but is now seen happening in early 2018.

Spurring the current optimism are a series of recent hot tech floats. China Literature raised 1.1 billion US dollars in November and jumped more than 80 percent on its debut - the best opening pop by any big IPO worldwide this year.

“The backlog is strong,” said Aaron Arth, head of the financing group for Asia excluding Japan at Goldman Sachs.

“There are a number of big deals likely to come to market that are backed by strong business dynamics and exposure to China - all at a time when people are reallocating to the region,” Arth added.

Source(s): Reuters