HKEx: a global IPO hot-spot
THE Hong Kong Stock Exchange (HKEx) is Asia’s third largest exchange in terms of market capitalisation, after Tokyo and Shanghai.
It was first established in 1891, although informal exchanges were taking place in Hong Kong for some thirty years previous to that date.
Nowadays, the exchange has become well-known for attracting big international companies – particularly those based in China – that are going public for the first time.
Italian fashion house Prada, for example, recently chose Hong Kong for its landmark flotation.
It is the first luxury goods group to list in the city, hoping to tap the burgeoning spending power of the Chinese consumer.
And HKEx was hoping that it would cement its position as the world’s biggest initial public offering (IPO) market – one that it has held for the past two years, raising US$57.4bn in 2010 alone.
However, Prada’s offering failed to dazzle investors, forcing the company to cut the final price of its listing by nearly one-fifth. Its value slipped to about £8bn as a result.
Analysts said the offering had been hit by the volatility caused by events in Greece, while retail investors were put off by the fact that they would be liable for Italian taxes when selling the shares.
Other luxury goods brands, such as Burberry, that have expressed an interest in listing in Hong Kong, may think twice as a result.
HKEx is facing increased competition for IPOs from both the US and Shanghai, which wants to provide an alternative for companies looking to list closer to China’s lucrative market.
Andrew Weir, a partner at KPMG in Hong Kong, said: “The law and regulation is in the process of being finalised, and it’s likely that a number of companies will want to list in Shanghai.”
That said, HKEx is still well ahead of London, where companies have raised US$14bn so far this year, and has some advantages over Shanghai.
“Hong Kong is a mature market, with well-established regulation and corporate governance, and that should protect its position,” Weir added.
Manoj Agarwal at Royal Bank of Scotland also believes that things will start to look up for the exchange soon.
“As Asian inflation fears subside and global economic certainty increases, you will see companies returning to the IPO markets again,” Agarwal said.