Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIAPopularity contest
H
ong Kong’s stock exchange is making the most of
its new-found popularity. When it comes to the
capital markets, however, there’s no telling how
long it will last.
Hong Kong is heading for a bumper year for IPOs. The
latest listing reforms have opened the market to hundreds –
if not thousands – of new candidates, and a hefty backlog is
building even before the rules take effect on Monday.
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the introduction of dual-class shares, alongside special
treatment for the biotech sector. It may have lost out to
New York on Alibaba’s IPO in 2014, but it has won the
battle for many others, including Innovent Biologics,
Ascentage Pharma and – the big one – Xiaomi.
A new agreement to allow Hong Kong listings from
companies quoted on China’s third board may be evenMOREûSIGNIlCANT ûSINCEûITûPOSITIONSû(ONGû+ONGûASûTHEû
simplest route to IPO for the over 11,000 mainly technology-
focused companies on the OTC exchange.
It is already clear that Hong Kong’s new listing rules have
made the city’s equity market more competitive. But even
this is no guarantee of long-term dominance.
China is joining the popularity contest, too, with its own
drive to attract technology listings and the introduction of
Chinese Depositary Receipts. As the mainland markets open
up, more major Chinese issuers will bypass Hong Kong
entirely.
To maintain its relevance in the long term, Hong Kong
will need to strike a delicate balance between attracting
MOREûBUSINESSûANDûKEEPINGûUPûSTANDARDSû4HEûNEXTûlVEû
years will be crucial.
Already, the exchange is facing criticism for making its
new rules deliberately vague, allowing it to pick and choosethe “innovative” companies it wants to list.
Hong Kong can retain a long-term role in connecting
Chinese companies with global investors, but only if those
investors believe it offers higher standards. What is right
may not always be popular.The magic number
T
hree may be a particularly auspicious number in
many cultures, but Asian issuers had little to cheer
as 10-year US Treasury yields crossed the symbolic 3%
barrier last week.
Long-term bond sales were quickly shelved. Both China’s
Huawei and Indonesian port operator Pelindo ditched plans
to sell 10-year dollar bonds.
But others stuck to their plans. CNOOC and State Grid
Corp of China included 10-year dollar tranches in their
global offerings last week and found a solid following for
their long-term debt, even at a razor-thin premium over
their existing curves.
China’s state issuers clearly still see value in setting an
offshore benchmark, even at much higher yields than they
are accustomed to paying. That is good news for origination
bankers, since the Middle Kingdom accounts for well over
half of all international issuance out of Asia. It could also be
good news for investors.
The international markets are now more important than
ever to China. Its biggest companies have come to rely on
access to global capital as they spread their wings into new
markets, and mainland investors need to diversify beyond
their home market. Politicians also see cross-border capital
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offshore Chinese credit outperform in a downturn. Far from
victimising overseas creditors – as some mainland issuers
may have done in the past – China has every incentive to
stay engaged.
Some global investors are taking that bet. CNOOC sold
HALFûOFûITSûlVE
YEARûANDûAûQUARTERûOFûITSû
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buyers, and State Grid managed a similar result.
Investors who liked CNOOC’s 2024s at 88bp over
Treasuries last October should like them even more at close
to 130bp today. And the sheer scale of the investments
coming from China’s banks and institutions should keep
offshore credits in good shape – no matter what the US
Treasury curve is up to.Hong Kong will need to strike
a delicate balance between
attracting more business and
keeping up standards.