Chinese Hong Kong listings survive capital curfews

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Although China has restricted capital flight, it is still encouraging Hong Kong IPOs. That is good for international banks – mostly.

Hong Kong China lion-600


For a twist on China’s capital control theme, it will be interesting to watch the progress of Chinese IPOs in Hong Kong this year. The broker Guotai Junan Securities will present an interesting litmus test.

China has clamped down on capital outflows, most obviously in outbound M&A, but has been increasing the volume and the speed of domestic share sale approvals. But how about listings outside China? Just as China is promoting offshore bond issuance, it also seems to be sanguine about listings in Hong Kong. It appears that raising funds outside the motherland is fine; sending funds outside the motherland is not.

The most closely watched in the near term will be Guotai Junan, which enjoyed a spectacular domestic debut in Shanghai in June, rising 44% on its first day of trading (the maximum permitted). A draft prospectus filed in Hong Kong on January 19 confirmed Bank of America Merrill Lynch, Goldman Sachs, Guotai Junan Capital and SPDB International for a likely $2 billion H-share listing in the first half of 2017.

Pipeline

Guotai Junan follows a number of Chinese banks and securities firms into Hong Kong, most recently Jilin Jiutai Rural Commercial Bank, which raised HK$3 billion ($386 million) on January 6 (with Guotai Junan International as sole sponsor). Guangzhou Rural Commercial Bank is also in line for an IPO and lodged a prospectus in Hong Kong in January. Others in the pipeline may include China United Insurance and Ping An Securities.

Continued fervour for H-shares is, on the face of it, good news for international banks. The presence of BAML and Goldman on Guotai Junan’s H-share listing is in contrast to the A-share in June, where China Galaxy Securities, Huarong Securities, Ping An Securities, Huatai United Securities and Southwest Securities were the underwriters. Fees in the draft prospectus remain redacted, but generally a Hong Kong IPO still pays pretty well.

But even in Hong Kong it is not a certainty that internationals get on to the big deals. For Guangzhou Rural’s IPO, which could raise as much as $1.5 billion, the joint sponsors are not Goldman or JPMorgan or Morgan Stanley but CICC, China Merchant Securities, CCB International and ABC International.

It used to be a rallying cry at Goldman that, no matter that Citic Securities had stolen its traditional spot in the upper tiers of investment banking fees, Goldman could still say it was on every billion dollar-plus IPO out of China; not this one, it would appear. At least Goldman is on Guotai Junan.

In any event, the main game this year will not be pure-play financials but Chinese fintechs. Ant Financial, if it comes, could be a record deal; if it does not, or if it goes to New York, the biggest Hong Kong IPO of the year is likely to be Lufax, China’s peer-to-peer lending platform, backed by Ping An.

Reported bookrunners on that one, expected to raise up to $5 billion, are Citic Securities, Citi, JPMorgan and Morgan Stanley. Here, at least, the internationals still have a role to play.