US firms muscle in on Hong Kong

Hong Kong IPO activity is hotting up again, but UK legal stalwarts are looking over their shoulders as US rivals make up ground fast

There has been a notable revival of IPO activity in Hong Kong in the past three months, but there are alarming signs for UK firms that have traditionally dominated this market that US rivals are rapidly closing in.

The speed of companies going public in Hong Kong picked up before Christmas, with nearly 30 completed IPOs on the main board of the Hong Kong stock exchange (HKEX) in November and December.

HKEX figures show that companies raised some $21bn (£13bn) from IPOs in Hong Kong in 2013, an 88 per cent rise from 2012’s $11.5bn, and 110 companies were newly listed compared with 64 in 2012.

There is still a long way to go before the market returns to the heady days of 2010 and 2011, when $67.8bn and $35.4bn were raised respectively. But the past year has kept firms such as Freshfields Bruckhaus Deringer, King & Wood Mallesons SJ Berwin (KWMSJB) and Simpson Thacher & Bartlett busy.

Hong Kong
Hong Kong IPO

According to deal data provided by Thomson Reuters, between January 2013 and February 2014 KWMSJB was involved in 16 IPOs, more than all its international rivals. However, it acted as China counsel in all the deals. Simpson Thacher and Sidley Austin both scored 11 deals. They are followed by Freshfields and Orrick Herrington & Sutcliffe, which acted on eight and seven IPOs respectively. Clifford Chance, Davis Polk & Wardwell, Kirkland & Ellis, Paul Hastings and Shearman & Sterling all bagged six mandates.

Last month Freshfields acted as the underwriters’ sole counsel in the $3.1bn IPO of HK Electric Investments. The firm’s Hong Kong corporate partner Grace Huang, US corporate partner Ken Martin and finance partner David Winfield led the team. The issuer, a trust spun out of Li Ka-shing’s business empire, instructed Sullivan & Cromwell’s William Chua and Hong Kong firm Woo Kwan Lee & Lo.

Financial institutions

During the 14-month period three of the five largest IPOs were by Chinese financial institutions, namely China Cinda Asset Management, Huishang Bank and China Galaxy Securities.

Davis Polk acted as lead counsel to China Cinda in its $2.5bn IPO, fielding Hong Kong corporate partners Bonnie Chan and Antony Dapiran, who joined the US firm in 2010 from HKEX and Freshfields respectively to launch its Hong Kong law practice. Davis Polk provided both Hong Kong and US advice to the issuer. 

Freshfields was also involved in the IPO, which was the largest in 2013. Led by Hong Kong corporate partners Teresa Ko, William Woo and US corporate partner Calvin Lai, it acted as both Hong Kong and US counsel to the underwriters, led by BoA Merrill Lynch, Goldman Sachs, UBS, Morgan Stanley, Credit Suisse, BOC and CCB.

Hong Kong IPO

In Huashang Bank’s $1.4bn IPO Latham & Watkins acted for the issuer while Clifford Chance advised the underwriters. China Galaxy, represented by Davis Polk, raised $1.1bn from its public debut. Clifford Chance also acted for the underwriters in this deal.

Other notable IPOs include Bank of Chongqing ($548m) and China Huirong Financials ($105.5m). Sullivan & Cromwell and Freshfields advised the former, while Simpson Thacher and Paul Hastings secured the lead roles in the latter.

While the market recovers, the playing field is changing, with US firms such as Davis Polk, Simpson Thacher and Kirkland gaining ground. Prior to 2010 they mainly worked alongside UK firms localised in Hong Kong. But the mass investments they made to build up their own Hong Kong law capabilities in 2010 and 2011 are starting to pay off, and they are gradually taking market share from UK firms.

Hong Kong advisers