Hong Kong bankers work around the clock as IPOs, Spacs surge

Last year, Hong Kong saw US$52 billion in listings, just below the US$58 billion that was raised in 2010. PHOTO: AFP

HONG KONG (BLOOMBERG) - Hong Kong's bankers are working around the clock as the region's companies rush to go public.

Initial public offerings in the city have already hit almost US$11 billion (S$14.8billion), a close to 500 per cent jump from a year earlier, with video streaming platform Bilibili and search giant Baidu among companies preparing multi-billion dollar deals. Digital roadshows and clients eager to move faster to capture abundant liquidity - especially as market sentiment has begun to sour - means bankers are keeping dawn-to-midnight schedules, say some, even turning down deals where they're relegated to junior roles.

Companies are trying to "get the deal done as soon as they can," said Stephanie Tang, head of private equity for greater China at Hogan Lovells. "Many of them see this as an opportunity and if they are not catching the train quickly, they might lose the opportunity."

A pandemic-induced hunger for technology stocks and the threat of US delistings have been a boon for the financial hub during a difficult political stretch, driving a surge in initial and secondary share sales. A new push by Shanghai's Nasdaq-like Star board to more closely scrutinize IPOs along with a pile-up of applications there may drive more of China's unicorns to Hong Kong, taking listings to a record, Bloomberg Intelligence estimates.

Unsurprisingly, the health sector is the busiest, with deals poised for both Hong Kong and the US Goldman Sachs Group's healthcare team is working on at least 20 IPOs in the US$300 million to US$1 billion range. Citigroup has won eight Chinese health-care mandates in the three weeks just before Lunar New Year, expecting to raise US$300 million to US$400 million for each in July through September. Citi has also nabbed the WeDoctor IPO, which is seeking to raise as much as US$3 billion at a pre-IPO valuation of US$12 billion. The details were shared by bankers and executives familiar with the deals, who asked not to be named discussing private matters.

"It's busier than ever," said Udhay Furtado, Citi's co-head of Asia Equity Capital Markets. "This is an attractive window for issuers and liquidity is available across financing products."

But the bustle comes loaded with execution risk as Chinese markets in early February started to stumble after a two-year rally and what's looking like the biggest-ever quarter for initial public offerings fueled by a US-led boom in blank-check listings.

In one recent deal, Autohome, a Chinese online car-sales website, sold shares in the city at about a 5.5 per cent discount to its last price in New York. Given the current volatility in the markets, only the most straightforward deals are also being pushed ahead right now, according to a banker in Hong Kong.

Rushing out

Many companies pushing to sell shares have yet to establish a sustainable way to make profits, including Chinese grocery delivery apps such as Meicai and Dingdong Maicai, who are facing heavy cash burn to win market share.

Liao Ming, the founder of Prospect Avenue Capital, which oversees US$500 million in private equity assets, said he expects at least five of his portfolio companies to list this year, out of a total 12.

"A lot of these companies including the grocery Space, wouldn't be able to find investors in a normal year," said the Beijing-based former Morgan Stanley banker. "But because of the bullish sentiment this year, a lot of companies that aren't ready yet are rushing to get out the door."

Charles Chau, Hong Kong-based partner at law firm Jones Day, said most clients are trying to submit IPO applications by March and supply additional financial statements by June to get a listing done by September.

The rush back home by Chinese stalwarts has been going since last year, when firms such as Netease and JD.com listed in Hong Kong. And now with Chinese regulators looking at tightening rules in Shanghai, it could impact a heavy backlog of deals and bring more to the financial hub.

If a slowdown in listings on the mainland pushes even more firms to Hong Kong, the hub could see a record year, wrote Sharnie Wong, an analyst at Bloomberg Intelligence. There were 735 IPO applications in mainland China in early March, compared with 500 last year, she said.

Last year, Hong Kong saw US$52 billion in listings, just below the US$58 billion that was raised in 2010, according to data compiled by Bloomberg.

Accelerated plans

In the US, markets have boomed with the listings of Spacs, or special purpose acquisition companies. That's also now reshaping Asian banking. JPMorgan Chase & Co and Credit Suisse Group have pulled people from corporate finance and equity capital markets to focus on those types of deals in Asia, according to people with knowledge of the moves.

Francesco Lavatelli, head of equity capital markets for Asia Pacific at JPMorgan, said the US bank has a "healthy pipeline" of deals, including Spac IPOs and mandates from companies looking to combine with an already listed Spac, known as a deSpac.

He said the recent stock turmoil is unlikely to derail the deals on tap. "If anything, it will accelerate plans, which might mean in some cases a deSpac process," the Hong Kong-based banker said.

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