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MARKETS & INVESTING | Tony Chua, Hong Kong
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Hong Kong’s IPO sees best interim performance in 10 years

An expected total fund raised of HK$400bn by 2011 end as companies use Hong Kong listing to tap China market.

Hong Kong’s initial public offering (IPO) market saw the best interim performance in 10 years, with a total fund raised of HK$182.2 billion from 33 IPO deals in the six months of 2011, against HK$50.3 billion from 27 deals in the first half of 2010. On the back of this momentum, the number of newly listed companies is expected to rise to around 100 by the end of 2011 from 95 a year earlier, although smaller deal size is likely to drag down the total capital raised to around HK$400 billion from HK$449 billion previously, according to professional services firm Deloitte Touch Tohmatsu.

“In the first half, the IPO market shrugged off the impact from risk factors, such as global stock volatility, the European debt crisis and political unrest in the Middle East. Investors were also not spooked by the devastating earthquake in Japan, as well as inflation pressure and macro control policies in China,” said Mr. Edward Au, National Co-Leader of Public Offering Group at Deloitte China, noting that Hong Kong ranked second in terms of IPO fund raised globally for the first six months in 2011.

With regard to industry, the retail and consumer sector saw the most number of IPOs during the first half of 2011 as a number of renowned brands embarked on their IPO plans, taking advantage of market optimism towards the sector outlook. In terms of fund raised, however, the energy and resources sector accounted for 51% of the total in the first six months, including the listings of Glencore International PLC and China Hongqiao Group Ltd.

One of the emerging trends is the growing importance of international listings, which dominates the top five largest IPOs during the first six months. Deloitte expects to see around 15 international listings by the end of 2011, but some international companies will opt for listings by introduction as the stock market is likely to remain choppy in the second half.

Looking ahead, IPO activities should remain active in the second half of 2011 as the Stock Exchange of Hong Kong continues to adopt an open approach, which includes admitting companies from an expanded list of jurisdictions to list in Hong Kong, recognising the Japan Generally Accepted Accounting Principles and establishing rules and infrastructure for Renminbi (RMB)-denominated IPOs. The world-class market in Hong Kong keeps attracting inflow of funds, coupled with Hong Kong’s ongoing advantage of its proximity to China, will also help energise the local IPO market.

Deloitte believes that Hong Kong's IPO activities will be particularly active in three industry sectors: retail and consumer, financial services, and energy and resources. By listing in Hong Kong, retail and consumer companies can tap into the huge consumption market in China, while energy and resources companies will be able to seize the opportunities from China as the largest importer for commodities globally. There is an urge for financial institutions in China to raise fund. On the one hand, banks and insurance companies have to meet the higher capital and liquidity requirements; and on the other hand, brokerage and securities firms need to support the expansion of their international and Qualified Foreign Institutional Investor businesses.

“Despite optimism in our IPO market, we should not be ignorant about some of the underlying challenges, such as the tightening of monetary policies in the face of heavy inflation, the uncertainty of the U.S. economy and the European debt crisis. Hong Kong will also need to cope with the rising competition from the Shanghai Stock Exchange, which has come to the final stage of launching the long-awaited international board,” noted Mr. Au.

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