Hong Kong bankers play an anxious waiting game

TUHU Car

26/09/2023 14:10

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.  Adds dropped words “this year” to final
paragraph.)
    By Katrina Hamlin
       HONG KONG, Sept 26 (Reuters Breakingviews) - Global
banks in Hong Kong are feeding on scraps. Fewer initial public
offerings in the city mean institutions including UBS  UBSG.S ,
Bank of America  BAC.N  and Morgan Stanley  MS.N  are tackling
smaller transactions. Three companies have sounded the gong to
ring in new listings this week, but it’s nearly a year since a
debut raised over $1 billion. As big deals including chip
designer Arm  ARM.O  and food delivery company Instacart
 CART.O  cross the finish line in New York, albeit with mixed
results, it will get harder for firms in the Asian hub to
stomach slim pickings.
    Bankers in Hong Kong are working on smaller issuances than
they typically took on in the past, Dealogic data shows. UBS and
Bank of America, for instance, are supporting Tuhu  9690.HK ,
which debuted on Tuesday after pricing at the bottom of the
range last week with an offering of $152 million. In the years
2018 to 2020, the average deal value for the Swiss bank in the
Asian hub was around 10 times that figure; for its U.S. peer,
the ratio was even higher. The trends are more mixed in the
United States.
    Working on the few deals that are available is a rational
response to a slowdown. It is unclear if global investors’
aversion to China, partly due to worsening geopolitics, will
result in a longer lean period in Hong Kong than elsewhere or
whether smaller deals will become more common in the gateway to
the world’s second-largest economy. Investors are also waiting
for a convincing growth recovery in China. The hub’s benchmark
Hang Seng Index  .HSI  is down 11% this year.
    Although the pipeline for deals in the Asian city is
brimming, there is no obvious blockbuster. Among the bigger ones
in the works, courier SF Holding  002352.SZ  has filed for a
secondary listing in Hong Kong and may raise up to $3 billion,
per IFR. The Shenzhen-based company has global ambitions but to
sell a large chunk of fresh stock it needs to convince the
market that it can thrive in Asia and beyond.
    Banks are trimming jobs and are biding their time by
redeploying resources. A few Asian markets are defying the
global slump: there have been more than 130 IPOs in India this
year – nearly quadruple the number in Hong Kong – representing a
near-50% increase from the same period in 2022 in the South
Asian country. But redeployment has obvious limits. Fees on
Indian deals are tiny, for example, and costs in Hong Kong are
high.
    Other pillars of the capital markets that were typically the
forte of international bankers are struggling too. Financial
troubles in China’s real estate sector have crushed activity in
the U.S.-dollar high yield bond market in Asia Pacific ex-Japan:
issuance this year is on pace to be lower than 2022, which saw
the lowest annual volumes in a decade, according to Debtwire.
Overall investment banking fees in Hong Kong are set to come in
at the lowest level in a decade too, Dealogic data shows, with
HBSC top of the table. The coming weeks and months will be an
anxious time for many of the city’s financiers.
    Follow @KatrinaHamlin on X
    
    CONTEXT NEWS
    Shares of Chinese auto-maintenance startup Tuhu Car opened
flat on its first day of trading on Sept. 26. The company priced
its shares at HK$28 each, the bottom of a previously announced
range, to raise HK$1.19 billion ($152 million), according to a
filing on Sept. 25.

 (Editing by Una Galani and Pranav Kiran)
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