Hong Kong prepares for influx of listings from mainland China

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Hong Kong is setting its sights on a $20bn listings revival this 12 months because it goals to use worsening US-China tensions and the sluggish mainland Chinese language fairness market.

Funding banks in Hong Kong expect a rush of listed Chinese language corporations, led by battery maker CATL, to arrange a secondary itemizing within the offshore territory. These “A to H” listings — from China “A” shares to Hong Kong — may elevate as a lot as $20bn in new funds, bankers say.

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A replenished pipeline would mark a pointy pick-up in exercise for Hong Kong, which has misplaced some high-profile worldwide corporations corresponding to cosmetics firm L’Occitane and struggled to switch them.

A lot of these corporations in China turning to Hong Kong have intensive abroad operations and need to elevate funds outdoors the mainland, as Beijing tightens capital leaving the nation. Geopolitical tensions between China and the US have made listings in New York, one other frequent pathway for Chinese language corporations, far much less interesting.

“The Hong Kong market will bounce again this 12 months . . . and a giant part of that might be A to H listings”, stated Kenneth Chow, managing director at Citi in Hong Kong. He added that Chinese language secondary listings may account for as a lot as “two-thirds” of the overall estimated $20bn of listings in Hong Kong in 2025.

Among the many corporations this 12 months which have confirmed plans to arrange secondary listings are prescription drugs producer Jiangsu Hengrui, which has a market capitalisation of $37bn, and soy sauce maker Foshan Haitian, valued at $32bn.

CATL has not but filed papers to the Hong Kong inventory change however Morgan Stanley estimates it may elevate as much as $7.7bn — a transfer that has been difficult by its addition to a Pentagon record of companies with links to China’s military.

Even so, there are indicators of a market keen for brand spanking new listings. Chinese language banks have supplied to work on the CATL itemizing for underwriting charges of simply 0.01 per cent, the Monetary Occasions reported on Wednesday.

Analysts at Deloitte’s capital market providers group estimate that Hong Kong may have 80 preliminary and secondary listings this 12 months, elevating as much as HK$150bn (US$19bn), largely by Chinese language corporations. They’d be a part of family names that document a lot of their revenue outdoors of the mainland, together with BYD and Tencent.

An inflow would additionally provide a shot within the arm to Hong Kong’s popularity as a global enterprise hub. Greater than $10bn in fairness was raised, in main and secondary listings, within the metropolis final 12 months, in accordance with Dealogic. That marked an enchancment on 2023’s complete of $6bn however fell far wanting the document $51bn raised in IPOs in 2020 in accordance with HKEX information. That bumper 12 months was additionally pushed by Chinese language corporations in search of listings outdoors the mainland.

The mainland Chinese language securities regulator has additional eased the trail for corporations to record in Hong Kong to assist them develop internationally, together with a latest pledge to “optimise the submitting system for abroad itemizing”. Different Chinese language corporations have additionally given up their listings in New York in recent times, citing the excessive administrative burden and low turnover.

“We count on the quantity of listings, together with these of A+H share choices, to realize additional momentum in 2025, as extra main corporations from China and around the globe use [the HK] platform to develop internationally,” a spokesperson for the Hong Kong inventory change stated.

Analysts say US President Donald Trump’s coverage in the direction of China may ship extra corporations to the territory.

Many Chinese language corporations have been pressured to delist from the US within the last days of Trump’s first administration, when the president issued an executive order, citing fears of hyperlinks to the Chinese language army.

“Geopolitical uncertainties [could prompt] extra Chinese language corporations and US-listed China idea shares to show to Hong Kong as their most popular abroad itemizing hub,” Edward Au, southern area managing accomplice at Deloitte China, stated in a report.

Trade executives say corporations going to Hong Kong will hope to duplicate the efficiency of Midea. The family equipment maker raised about $5bn in an oversubscribed providing and its shares are up 27 per cent since its September float. That charge of progress is quicker than its Chinese language equal and narrowed the low cost to the mainland A share.

An organization listed in China usually trades at a premium to its Hong Kong counterpart of as a lot as 40 per cent, as a result of mainland market’s increased degree of native retail participation.

Regulators are intently watching the doubtless valuation of H shares and their low cost to A shares. A capital markets banker in Hong Kong informed the FT that he had had discussions with Chinese language authorities concerning the potential valuation of H shares.

Authorities have centered on liquidity doubtlessly leaving the nation, devaluing Chinese language corporations and inspiring arbitrageurs trying to make a revenue from the distinction in costs between the 2 shares.

Giant-cap Chinese language corporations corresponding to BYD are likely to have a a lot smaller low cost in Hong Kong, whereas smaller corporations are comparatively unloved outdoors of the mainland.

“The larger problem for our . . . initiatives is that if we will slender the low cost between A and H shares even additional,” stated one govt at a Chinese language brokerage agency.

“We additionally assume that there’s a excessive likelihood that there might be an extra rebound [in activity] in 2025,” he stated. He additionally expects about $20bn in fundraising this 12 months however added that “that is purely our personal estimate”.

Knowledge by Haohsiang Ko