Chinese firms dominate global equity fund raising

HONG KONG • Firms in China brought in half of equity capital raised globally this year so far, setting a record that highlights the economy's earlier revival from the Covid-19 pandemic, plus the degree to which soured US relations are turning Chinese firms homeward.

China-based companies sold shares worth US$32.1 billion (S$44.7 billion) from January to this month, including multi-billion-dollar secondary listings in Hong Kong, equivalent to 49.8 per cent of worldwide offerings, data from Refinitiv showed. The total for US firms was US$15.8 billion.

"With massive liquidity injections by various governments (supporting virus-hit economies), I'm not surprised by the size of Chinese capital raised this year - and the trend may continue," Davis Polk capital markets partner Li He said of China firms taking advantage of their early lockdown emergence.

China was hit by the coronavirus in December and was the first country to impose virus-prevention lockdown measures on individual movement and business activity in late January. Markets began their return to normality in April.

Chinese fund raising has been helped by the popularity of Shanghai's year-old growth-focused Star Market, as well as well-received initial public offerings (IPOs) in Hong Kong and the massive secondary listings - including the US$3.9 billion raised by e-tailer JD.com this month and US$3.1 billion by games developer NetEase.

"For Chinese companies, both the Hong Kong and US markets are getting back to normal," said Mr Houston Huang, head of global investment banking for China at JPMorgan. "Market activity (deal volume) is much better than anybody expected at the beginning of the year."

Escalating Sino-US geopolitical tension over issues such as trade is widely expected to prompt more US-listed Chinese firms to conduct secondary listings closer to home where they can raise funds in markets absent of anti-Chinese sentiment.

Companies considering a secondary Hong Kong listing include Yum China Holdings and ZTO Express (Cayman), said two people with direct knowledge of the matter.

Neither Yum nor ZTO responded to requests for comment outside of regular business hours.

Secondary deals are also increasing investor interest in Hong Kong, a market with a reputation for hosting stodgy financial and property groups rather than growth-focused tech companies.

Mr Li Hang, CLSA's head of Greater China equity capital markets, said the JD.com sale, on which his bank worked, was able to win orders not just locally but also from South-east Asia and Europe.

"If a company is looking at a secondary listing in Hong Kong, they need to be looking at gathering investors' interest from not only from Asia, but also Europe and the US," Mr Li said.

Also of concern for Chinese firms are US steps aimed at improving the transparency of financial disclosure but which clash with the Chinese government's reluctance to give foreign entities access to onshore records.

Last month, just weeks after former market darling Luckin Coffee said its sales had been falsified, the US Senate passed a Bill that could force Chinese firms to delist if they do not allow the Public Company Accounting Oversight Board to access their audited accounts for three consecutive years.

Mr Will Cai, head of US law firm Cooley's capital markets practice in Asia, said the Bill spurred two of his eight Chinese clients with IPO plans to choose Hong Kong over New York.

For some Chinese companies, prestige continues to propel them towards a US listing in spite of political wrangling and negative sentiment towards Chinese firms following fallout from Luckin Coffee.

Chinese groups still managed to raise US$1.7 billion through New York IPOs during the coronavirus-hit first half of the year, versus US$3.42 billion in January to June last year.

The figure includes the US$510 million raised by Kingsoft Cloud Holdings early last month in the first major US IPO since the coronavirus outbreak - and the first since Luckin's disclosure. Its stock has since risen nearly 60 per cent.

"We were under lot of pressure because if this one had failed, basically the US market could have potentially closed the door to all Chinese companies," said Mr Huang at JPMorgan, a lead underwriter for the deal.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 30, 2020, with the headline 'Chinese firms dominate global equity fund raising'. Subscribe