Chinese banks are the best option for Hong Kong ECM bankers wanting to work on new listings in the city, new figures reveal.
Hong Kong enjoyed its busiest first quarter on record for new listings, with the city’s boards welcoming 50 new companies, according to preliminarily Q1 data from Dealogic.
But ECM teams at US and European banks in Hong Kong won’t necessarily be celebrating. While Chinese firms have been rising up regional league tables for several years, during the current quarter they have taken all 10 places for Asia Pacific (ex-Japan) issuer IPO volume by bookrunner.
The dominant IPO banks in Asia are (in order of market share): CITIC Securities, Huatai Securities, Guosen Securities, China Merchants Securities, China Securities, Haitong Securities, Zheshang Securities, China Construction Bank, GF Securities, and Guotai Junan Securities.
Mainland banks have cornered the IPO market in Asia as more companies from their home country use Hong Kong’s exchange to go public. While some Western corporates have listed in Hong Kong in the past – Samsonite in 2011, for example – few do so now. Chinese banks have also landed IPOs by offering fees as low as 1%, well below the rates of their global rivals.
“Chinese financial institutions have been making inroads into Hong Kong IPOs for a while now,” says Yvette Kwan, a former APAC investment banking COO at UBS, now a partner at Hong Kong consultancy Quinlan & Associates. “Their bankers are often already well connected with the Chinese companies they are helping to list in HK, whether they have a mutual contact who can make preliminary introductions, or they went to school with a key decision maker’s family member, or a related entity of the bank already services the client in China.”
Citi, UBS and Morgan Stanley made the full-year Asian IPO top-10 for 2017 (in 2nd, 8th and 9th spots, respectively) but even their bankers have been shut out so far this year.
UBS’s chances of getting back into the top-10 took a big hit earlier this month when it suffered an 18-month suspension from sponsoring IPOs in Hong Kong. Sponsor banks are typically appointed in the lucrative role of lead underwriters, so the ban could diminish UBS’s underwriting income just as Chinese look to cash in on Hong Kong’s buoyant 2018 IPO pipeline.
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