Hong Kong is IPO capital no more

Hong Kong tumbles from top IPO destination to seventh in just six short months.

The souring world economy has hit Hong Kong the hardest in multi-billion dollar investments. Hong Kong is now the world’s seventh leading center for IPOs from Number One in 2011.

Hong Kong IPOs from January to May total a paltry US$3.2 billion, just 9% of the US$35.4 billion in 2011 and 5% of the record US$67.8 billion in 2010. With the weak world economy, it is now virtually impossible to approach the totals set in these two previous years.

NASDAQ and the New York and Shanghai stock exchanges are the leading IPO destinations so far this year.

Hong Kong can trace the root of this problem to its traditional source of IPOs: the big Chinese state-owned enterprises. Most of these big enterprises have had their IPOs and China’s slowing economy is preventing the remainder from taking the same route.

Analysts question whether Hong Kong can regain its top ranking in the coming years or whether the good times are gone.

Hong Kong Exchanges & Clearing, which operates the local stock exchange, has signaled its own worries about the future of its core business by diversifying away from equities and into commodities. Last week, it agreed to buy the London Metal Exchange for £1.4 billion, which is 180 times LME’s earnings last year.

Unfavorable market conditions have also led to IPOs in Hong Kong being pulled or cut down in size.

Three IPOs that were to have been completed earlier this month were shelved. Graff Diamonds Corporation, China Yongda Automobiles Services Holdings and China Nonferrous Mining Corporation are the latest victims of the rapidly cooling market demand for IPOs.

Analysts said they expect more IPOs to collapse in Hong Kong and throughout Asia due to the extreme volatility sparked by the Eurozone crisis.

Dealmakers said investors were unnerved by the Eurozone crisis and the fact that global stocks fell 10% during the month. Some 46 companies have withdrawn or postponed IPOs worth a total US$7.7 billion in Asia thus far this year.