Number crunching: Hong Kong IPOs

The Hong Kong Stock Exchange (HKEX) has been the world’s largest bourse by deal volume for the past three years.

Although it had a slow start to 2012, the Hong Kong IPO market remains slightly more active than other major jurisdictions. In the first quarter of this year, 20 companies went public in Hong Kong, raising more than $2bn (£1.26bn).

Most recently, Chinese securities house Haitong launched its £1.7bn H-share IPO in Hong Kong, making it the largest listing on the HKSE so far this year. Clifford Chance and Paul Hastings were the international advisers, acting for the issuer and underwriters respectively.

With the eurozone crisis still looming large over global markets, some companies that were set to go public in Hong Kong have postponed or cancelled their plans. The Haitong IPO, set to launch at the end of 2011, is one.

However, capital markets lawyers have sensed some signs of market life of late, and remain cautiously optimistic about prospects for the rest of this year.

A large number of US and UK firms enjoyed several good years on the active Hong Kong IPO market and reaped the benefits of their work.

Magic circle firm Freshfields Bruckhaus Deringer and US firm Sidley Austin have led the pack in the past five years. Data provided by Thomson Reuters shows that Freshfields advised on 52 Hong Kong IPOs from January 2007 to December 2011, while Sidley Austin scored 53.

Traditionally, Hong Kong’s IPO market has been fuelled by the need of Chinese companies to raise funds for growth and overseas expansion, but in the past few years more of the big IPOs were by issuers from jurisdictions such as Canada, Mongolia and Europe.

The mining sector has also produced a number of mega-IPOs, including Switzerland-headquartered Glencore, Russia’s Rusal and Canada’s Sunshine Oilsands.

Hong Kong has also hosted several ’first of its kind’ listings: the first Hong Kong depository receipts (HDRs) listings by companies incorporated in Japan and the US; the first listing by a Kazakhstan company, Kazakhmys, and an Italian one, Prada; and the first renmimbi-denominated IPO to
take place outside mainland China – Hui Xian REIT.

While Chinese companies will continue to be a major source of clients for Hong Kong IPO work, it is expected that more international companies from the retail and consumer sectors as well as energy and resources companies will be drawn to Hong Kong for listings by the growth prospects of the Chinese market.

Dominant players in this area are likely to continue to do well, but they will inevitably face growing competition from firms that have recently expanded their Hong Kong capital markets practices. These include Kirkland & Ellis, Davis Polk & Wardwell and Simpson Thatcher & Bartlett, all of which have hired partners from established rivals.

Given the high level of partner movement among international firms in Hong Kong, it will be interesting to see how the pecking order will change when the market gets back into full swing.

HKEX prospects

At the end of 2011, of the 1,326 listed companies on the HKEX Main Board, 576 (43 per cent) were mainland China state enterprises.

In the coming years, capital markets lawyers expect to see fewer mega-IPOs like these and more private mid-cap deals.

However, lawyers predict that state outfits that have been listed in Hong Kong for years will spin off subsidiaries through IPOs. The complexity of these transactions will be comparable to the IPOs of the parent companies.

The market also expects to see more IPOs of Chinese companies backed by private equity firms.


Top five HK IPOs in 2011

  1. Linklaters and Pestalozzi advised Glencore International on its $10bn (£6.3bn) IPO
  2. In the $2.1bn IPO of Prada, Slaughter and May worked as the issuer’s counsel together with best friends Italian firm Bonelli Erede, Chinese firm Jun He and US firm Davis Polk & Wardwell 
  3. Freshfields and Grandall advised Shanghai Pharmaceuticals Holding on its $2bn H-share IPO
  4. Freshfields and Commerce & Finance advised Chow Tai Fook Jewellery Group on its $2bn IPO
  5. Baker & McKenzie, Latham & Watkins and Jiayuan advised CITIC Securities on its $1.7bn IPO