HK IPOs Sizzling Hot

HK's IPO market has surpassed other financial centers by the proverbial mile this year. The liquidity arriving into HK from China and from the US carry trade have helped fuel the boom. The thing that sets this event apart is the proximity to the recent global crisis, and the pent up demand to raise cash by many large companies. Again, as I have warned before, I am quite uncomfortable with the upcoming UC Rusal IPO, a highly questionable and large IPO. Things could be derailed very swiftly if things do not go as planned.

The Standard: Hong Kong is now the world's premier destination for initial public offerings, having raised US$13.82 billion (HK$107.79 billion) in the first 10 months of the year.

Shanghai along with the increasingly hot Brazilian stock exchanges as well as New York were left in the wake of Hong Kong by the end of October, according to the World Federation of Exchanges after its latest month-by-month review.

Hong Kong was ranked top as the largest listing market by fund-raising size, the federation revealed. In taking the No 1 spot, it knocked the Shanghai exchange from the perch it had occupied for three straight months since July. Shanghai's IPO take for the year now stands at US$12.37 billion.

Yet funds being raised are still comparatively modest when compared to the 2006 and 2007 golden years - a period that was brought to a crashing end by the financial tsunami. In each of those years, the Hong Kong exchange counted more than HK$300 billion, driven by heavyweight listing candidates such as Industrial and Commercial Bank of China (1398). That raised HK$124.9 billion in 2006.

Hong Kong is now seeing investment capital pouring into the listing market "as there is no other way to go due to the low interest rate," said Bright Smart Securities general manager Nelson Chan Kai-fung.

The number of offerings this year to yesterday was 62 percent up on last year. Forty-seven companies have turned to Hong Kong this year for flotations, and two-thirds of them were listed in the July

-November period, according to Hong Kong Exchanges and Clearing (0388). "I believe the number of listing candidates will continue to climb in early 2010," said Prudential Brokerage's Mark To.

Companies are eager to cash in on market liquidity "before the central banks tighten monetary policy in the wake of economic recovery," To added. The surge in listings is also expected to continue next year because the SAR is considered a main beneficiary of efforts by the mainland to maintain its momentum. Indeed, brokers see China as the economy with the most growth potential. "The world is looking to tap the China market, and Hong Kong is the place which enables other economies to have access to it," To said. "Nearly 99 percent of the listing candidates generate income from the mainland."

Chan has a similar reading on the potential for the Hong Kong market. He believes it will draw more listing candidates from other countries, helped by an intense effort by HKEx to attract overseas firms.

Continuing the trend, UC Rusal, the world's biggest aluminum maker, is likely to be the first Russian firm to list in Hong Kong. It has a listing hearing on Thursday. It hopes to dual list 10 percent of its shares in Hong Kong and Paris this year - a move with an estimated value of US$2 billion.

p/s photos: Zhou Weitong