Firms from Middle East, Europe are eyeing Hong Kong IPO thanks to cross-border schemes: UBS

Many international companies are keen to float their shares in Hong Kong as the cross-border trading links with mainland China make the city the "ideal IPO market", according to UBS.

The Swiss bank's optimistic tone comes after a dismal first half to the year that saw funds raised from new share listings in Hong Kong fall to a two-decade low.

"A number of our international corporate clients from Asia, the Middle East and Europe have expressed interest regarding a Hong Kong listing," said John Lee, vice-chairman and co-head of Asia country coverage at UBS in an interview.

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"They consider Hong Kong an ideal IPO market after they learned that their shares listed in Hong Kong could be traded by mainland investors via the two Stock Connect schemes.

"Since UBS is an international bank with a global network, we are in an advantageous position to assist these companies to list and raise funds in Hong Kong."

Since March last year the China Securities Regulatory Commission has allowed Hong Kong-listed international firms to be traded by mainland investors via the so-called southbound channel of the Stock Connect mechanisms. The schemes link the local stock market with those in Shanghai and Shenzhen for cross-border trading.

"This is really attractive to some international companies that want to diversify their investor base. Some of them want dual listings, primarily in Hong Kong and another market, while some simply want to list in Hong Kong," Lee said.

The bourse operator, Hong Kong Exchanges and Clearing (HKEX), has focused strongly on attracting international listings in recent years.

HKEX executives, alongside other financiers and regulators, have accompanied Chief Executive John Lee Ka-chiu on tours to the Middle East, Asia and Europe to promote the advantages of Hong Kong as an IPO destination.

Big C Supercenter, the Thai supermarket chain, said last summer it was considering a dual listing in Hong Kong and Thailand. The plan however was delayed because of unfavourable market condition at the time.

Former CEO Nicolas Aguzin opened overseas offices in London and New York last year, while current boss Bonnie Chan Yiting is working to address the recent dry spell of new listings.

Chan said in May it was "just a matter of time" before some of the biggest Middle East companies choose to launch IPOs in Hong Kong. She was speaking at a media briefing at the Capital Forum co-hosed by HKEX and Saudi Tadawul Group, the parent of the Saudi stock exchange.

Saudi Arabian companies such as oil giant Aramco are eligible to apply for secondary listings in the city after the HKEX added the Saudi Exchange, known as Tadawul, to its list of recognised bourses in September.

Last November, CSOP Saudi Arabia ETF, the first exchange-traded fund in Asia that tracks the Middle East's biggest companies listed on the Hong Kong exchange.

The city slipped several rungs to 13th place in a global ranking of IPO markets, according to data from the London Stock Exchange Group (LSEG).

Lee, however, said the tide has turned, with over 100 listing applications queued up in the Hong Kong IPO pipeline. It comes after a recent rally in stocks, which have risen over 10 per cent since the CSRC announced in April a range of measures to support the Hong Kong stock market, including a policy to encourage large mainland firms to list here.

The CSRC has already approved some sizeable listing candidates, including logistic company SF, according to the website of the mainland's markets regulator.

SF, whose shares are already listed in Shenzhen, applied to list in Hong Kong on Friday in a deal expected to raise between US$1 billion and US$1.5 billion, according to market estimates.

"The CSRC policy announced in April showed its support to mainland leading companies to list in Hong Kong," said Lee.

"We have already seen a number of mainland firms considering listing in the city, which is why the exchange received quite a number of new listing applications in May. More will come in the coming months with the improved market sentiment."

UBS, which merged with its rival Credit Suisse last year, has strengthened its investment banking team with more specialists in different sectors, which Lee said put it in a good position to tap the expected recovery of the IPO market.

"There are a number of blockbuster deals that have filed listing applications in Hong Kong. The total funds raised this year should reach up to US$6 billion, and next year will further increase with the recovery of the IPO market," he said.

UBS is the second largest underwriter for all types of equity fundraising in Hong Kong so far this year, raising US$907.4 million for three firms, behind Morgan Stanley on US$984.4 million, according to data from LESG.

The Swiss lender was the sponsor of China Tourism Group Duty Free's US$2.3 billion IPO in 2022, the largest flotation of that year.

Lee said the HKEX's many reforms have boosted the IPO market. In June the artificial intelligence drug researcher QuantumPharm became the first company to list under Chapter 18C, a regime introduced more than a year ago for specialist technology firms to list even if they are yet to generate any profit.

"There will be more listings under Chapter 18C as technology will be the focus of the investment market in the coming years," Lee said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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