Corporate Finance : China Ipos Boost Hong Kong Exchange


The Hong Kong Stock Exchange is giving London and New York a run for the money as the worlds largest venue for new listings, thanks to privatizations of Chinas big state-owned banks and industrial companies. Hong Kongs exchange raised about $35 billion in initial public offerings in the first three quarters of 2006, placing it second to Londons approximately $40 billion in new listings but ahead of New Yorks $30 billion, according to Thomson Financial.

US issuers accounted for only 20.1% of global IPOs in the period, which was the lowest percentage on record. More than half of Hong Kongs total, however, came from two big bank IPOs. Bank of China raised $10 billion in June, and Industrial and Commercial Bank of China raised about $16 billion in Hong Kong in late October.

While no IPOs of that size are expected in the near future, a flood of smaller deals by Chinese companies in a broad range of industries is keeping Hong Kong busy. China Communications Construction, Chinas leading transport infrastructure company, raised $2.1 billion in its Hong Kong IPO in December. The company sold 3.5 billion new shares, representing a 24.5% ownership stake, and attracted about $162 billion in orders from institutional investors. BOC (International) Holdings, Merrill Lynch and UBS arranged the sale.

China Communications Construction will use the proceeds of its IPO to buy equipment to build roads and bridges, ports and railways. The company accounts for 90% of the market to design and build ports in China, and it plans to increase production at its container-crane manufacturing facility in Shanghai. China plans to invest $485 billion in transport-related infrastructure under its current five-year plan that ends in 2010.

Meanwhile, China National Coal, the countrys second-largest coal producer after Shenhua Energy, was conducting a road show last month for what was expected to be a $1.5 billion share sale. China National Coal is buying a major coal-to-petrochemicals plant that is designed to reduce the countrys reliance on imported oil. Coal accounts for more than 70% of Chinas total energy consumption.

Among smaller offerings in December, China Communications Services, which is majority owned by China Telecom, sold 24.6% of its share capital for about $300 million. Goldman Sachs and China International Capital (HK) managed the offering. Zhaojin Mining Industry, a gold mining company, sold a 25% stake for about $282 million in a sale handled by Cazenove Asia and UBS (Hong Kong). Shanghai Jin Jiang International Hotels, Chinas biggest hotel operator, raised $311 million in an IPO led by BNP Paribas Peregrine Capital and UBS (Hong Kong). The company will use the proceeds to open more hotels outside Shanghai and to refurbish existing hotels for the 2008 Beijing Olympics and the 2010 Shanghai World Expo.

The Hong Kong Stock Exchange is the market of choice for listings of Chinese companies, which want to avoid the high cost of compliance that comes with a US stock exchange listing. The IPO calendar in Hong Kong is building up quickly for 2007. China CITIC Bank, the countrys seventh-largest bank by assets, said it would float its shares in Hong Kong early this year. In November 2006 Spanish banking group BBVA purchased a 5% stake in China CITIC for $635 million. BBVA also purchased a 15% stake in CITIC International Financial for $617 million. Citibank, HSBC, Lehman Brothers, CICC and CITIC Securities will underwrite the Hong Kong IPO for China CITIC Bank.

Agricultural Bank of China is the only unlisted bank among Chinas Big Four state-owned lenders, and it, too, is being groomed for an exchange listing.


Gordon Platt