China listings puts HKSE into top global bourses

China's biggest coal mining company Shenhua Energy is getting a warm reception from fund managers as it prepares to sell up to US$3.6 billion in shares ahead of a Hong Kong market debut on June 15.

Close on its heels will be the premier listing in Hong Kong by a mainland bank. Bank of Communications, China's fifth biggest lender, is set to raise up to US$2 billion and should debut around June 23. It too is getting good reviews from international fund managers who want to buy into the long-term growth story of China's financial sector.

Two more big Hong Kong listings of mainland companies will follow soon thereafter. Cosco Holdings, a state-run container shipping line, plans a US$2 billion listing in July and Minsheng Bank expects to raise US$800 million from its Hong Kong share offering.

A little further down the track one of the mainland's Big Four lenders, China Construction Bank, is planning a flotation in Hong Kong in November, which could raise as much as US$10 billion, the biggest of all.

Haier Electronics, which is bulldozing its way toward the global top three in the consumer electronics sector, gave Hong Kong's exchange another boost on May 25 by announcing that it would inject more assets into its Hong Kong-listed entity and turn it into the group's global flagship.

Fund raising through Hong Kong

'It's an indication of the interest China-based companies have to seek access to international funds through Hong Kong,' said Louis Wong, research director at Phillip Securities. 'It is also a reflection of the growing economic integration between Hong Kong and China.'

A new study by accountants PricewaterhouseCoopers underlined the momentum Hong Kong is building as a fund-raising centre.

'Hong Kong is the only market (in Greater China) that shows a continual increase in IPO funds raised and average deal size between 2002 and 2004,' said Ernest Ip, head of PWC's capital market group.

'The Hong Kong stock market was ranked as the world's third largest fund raiser in 2004, a fact which emphasises the growing importance of Hong Kong among the global stock markets.'

Perhaps the most telling statistic is that last year the average amount raised by an initial public offering in Hong Kong was US$179 million, much higher than the average of HK$88 million (US$11 million) raised on European exchanges. The Hong Kong figure would have been an even higher US$247 million if only main board listings were taken into account.

Winning formula

Hong Kong's winning formula of an open and transparent economy, the free flow of capital, the rule of law, efficient infrastructure, its location, and its status as a regional centre for fund management have made it a natural choice for China companies to list.

'Hong Kong will become more and more important for fund-raising by mainland Chinese companies,' said Peter Lai, sales director at DBS Vickers Securities. 'Foreign investors are attracted to come and invest because its regulatory system is more mature.'

Besides Hong Kong, Chinese companies have listed in Shanghai, Shenzhen, Singapore, London and New York. But while Hong Kong has retained its primary importance, the other options are fading or being temporarily closed down.

Beijing has decided to halt new listings in Shanghai and Shenzhen for now while it deals with the thorny issue of selling the huge and untraded state-owned stakes of companies that are already on the market. Singapore does not have the depth to ensure that a big Chinese company will be traded freely once it has been listed.

'It's easy to be listed in Singapore but the secondary market lacks liquidity, which Hong Kong has in abundance,' says Mr Wong.

Mega listings

In the past, some Chinese companies have sought dual listings in New York but tough - some say overly tough - new regulations in the wake of US corporate scandals in 2001 have dimmed its appeal, he added.

The steady stream of mega listings coming from China have helped Hong Kong undergo a rapid transformation that has spanned barely a decade. At the start of 1995, the 33-stock blue chip Hang Seng Index had only one mainland company, Citic Pacific amidst a selection of Hong Kong banks, property companies, hotel firms and utilities.

Now Citic has eight mainland peers in the index and there are likely to be more once the big new China listings have traded on the market for two years. Over time the Hang Seng Index and the broader market will more closely reflect what is happening in China's economy as a whole than just Hong Kong's.

Next year another of the Big Four banks, Bank of China and the Central People's Bank of China are likely to seek listings in Hong Kong, says Mr Wong. They will be following the well-trodden path down to Hong Kong's thriving stock market.