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Thursday, August 15, 2019, 13:21
Mainland companies reconsider IPOs as HK unrest persists
By Bloomberg
Thursday, August 15, 2019, 13:21 By Bloomberg

The flag (right) of the Hong Kong Exchanges and Clearing Limited (HKEX) is hoisted next to Chinese national flag (center) in the Hong Kong Special Administrative Region on Aug 16, 2016. (ANTHONY WALLACE / AFP)

Several Chinese mainland companies are rethinking fundraising plans in Hong Kong as anti-government protests rock the city, an ominous sign for its future as a financial gateway between Asia’s largest economy and the rest of the world.

READ MORE: Protests 'posing risks' to city's GDP growth

One company scrapped preliminary preparations for a US$500 million initial public offering in Hong Kong partly because of the unrest and will instead pursue a US listing, according to a senior banker on the deal, who asked not to be named discussing private information. Another banker said at least two companies are considering the same move for IPOs worth a combined US$1 billion, adding that final decisions will depend on market conditions and whether the turmoil in Hong Kong eases.

E-commerce giant Alibaba has filed a listing application for a share sale that may raise as much as US$20 billion, people familiar with the matter said in June, but the company has stayed quiet about its intentions since the protests escalated

While the deals amount to a small portion of the money raised by mainland businesses in Hong Kong in recent years, they bode ill for the city’s status as one of the world’s premier financial hubs. The two senior bankers said Chinese clients are worried about more than just this week’s shutdown of Hong Kong’s airport and other logistical headaches caused by the protests; they’re also questioning whether the city will remain a stable place to do business over the long term.

“The social and political instability has had an impact on people’s perceptions,” said David Cho, a partner at law firm Dechert LLP based in Hong Kong. “The pipeline isn’t looking strong for the remainder of the year.”

The city’s benchmark Hang Seng Index has tumbled 12 percent over the past three weeks as clashes between protesters and police turned increasingly violent. The S&P 500 Index fell about 5 percent during the same period.

The stakes could hardly be higher for Hong Kong, whose economy is highly dependent on the financial industry. Mainland companies accounted for US$9 billion of the US$11 billion raised via IPOs in the special administrative region, as well as about 80 percent of bond sales in the city, data compiled by Bloomberg show. Outstanding China-related loans by Hong Kong banks totaled more than US$560 billion at the end of the first quarter, according to the Hong Kong Monetary Authority.

Thousands of protesters flood Hong Kong International Airport in an anti-government protest, leading to the cancellation of all hundreds of flights, Aug 12, 2019. (PHOTO / CHINA DAILY)

The city faces competition from international hubs like the US and Singapore, but it’s also increasingly vying against financial centers in the mainland. A gradual loosening of restrictions on foreign investment has turned Shanghai and Shenzhen into feasible options for mainland firms who want access to overseas funds.

Even so, few expect mainland companies to abandon Hong Kong’s financial system en masse. US markets are seen as a more stable, but their appeal to Chinese mainland issuers has also diminished somewhat in recent months as the trade war soured relations between the two countries.

One closely watched test of Hong Kong’s appeal is Alibaba Group’s proposed mega-listing in the city. The e-commerce giant has filed a listing application for a share sale that may raise as much as US$20 billion, people familiar with the matter said in June, but the company has stayed quiet about its intentions since the protests escalated.

ALSO READ: Finance secretary: HK economy under pressure

Even if the Alibaba deal proceeds as planned, there’s little doubt that Chinese mainland executives have become more wary of Hong Kong. In addition to those rethinking IPOs, several are canceling or postponing meetings with investors in the city to avoid the risk of getting caught up in protest-related violence or travel disruptions, bankers said. Some are using video conferences instead.

Hong Kong’s turmoil has affected the financial industry in other ways. BlackRock, the world’s largest asset manager, postponed its Asia Media Forum in the city to February from September, a company spokeswoman said on Wednesday, so that “as many partners as possible” would be able to join.

While CLSA plans to go ahead with its popular annual forum in Hong Kong next month, the investment bank has hired a private security company for the event and is working on contingency plans that include a livestream in case some delegates are unable or unwilling to attend in person.

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