By Tendai Musakwa
Domestic investment banks are underwriting more IPOs of mainland companies that list in Hong Kong, taking over European and US banks.
According to an October 22 South China Morning Post report, market leaders in the mainland's investment banking business such as China International Capital Corp. and BOC International have been underwriting more IPOs as more Western banks leave the business and mainland firms increase efforts to underwrite more IPOs. China International Capital Corp. underwrote or plans to underwrite one-third of all IPOs that are scheduled to take place in Hong Kong in the fourth quarter of this year.
Information from Reuters shows that as of October 3, 15 mainland companies were planning to list in Hong Kong in the fourth quarter of 2012. Among these companies, 8 firms, or 53 percent of the total number of mainland companies planning to list in Hong Kong between October and December, had mainland investment banks as joint underwriters for their IPOs.
In comparison, as of September 28, 2011, 22 mainland companies were planning to list in Hong Kong in the fourth quarter of that year. Among these companies, only 7 firms, or 32 percent of the total number of mainland companies planning to list in Hong Kong between October and December of 2011, had mainland investment banks as joint underwriters for their IPOs.
Mainland companies are relying more on mainland investment banks to handle their IPOs because domestic banks are willing to take on additional risk and have closer relationships with listing candidates. Many Western asset managers are currently short of cash, or choose to allocate more financial resources to solve their problems at home rather than to put more focus on Hong Kong business.
"The trend towards more involvement by Chinese banks can be clearly seen everywhere in the financial-services industry, which requires local skills and industry knowledge and in some cases is a very different operating environment from one familiar to bankers who sit in traditional financial centers such as Hong Kong and New York," said an investment banker quoted in the South China Morning Post report.
Data from Bloomberg shows that mainland investment banks' share of the Hong Kong IPO market surged to a five-year high at the end of last year, as mainland banks underwrote 30 percent of all IPOs in Hong Kong that year. Of the 66 companies that went public in Hong Kong in 2011, 36 were based in the mainland, compared with 26 from Hong Kong and four from other regions.
Mainland companies accounted for six of the top 10 IPOs in Hong Kong in 2011 by capitalization, and mainland companies accounted for 55% of the total market capitalization in Hong Kong stock markets that year, up from 30% in 2003.
