HK set to retain IPO crown

Hong Kong looks set to retain its crown as the world's biggest IPO market for the third year in a row, pipping New York, but analysts warn of a tough 2012 as market volatility continues.

The southern Chinese city overtook New York in 2009 to become the top venue for new listings, as a slew of companies turned to the Asian financial hub in a bid to tap mainland China's explosive growth and cash-rich investors.

Despite a choppy year, exacerbated by the eurozone debt crisis that saw some firms shelve or downsize their initial public offerings, Hong Kong is likely to hold its top spot in 2011, according to latest industry data.

The Hong Kong stock exchange raised some US$36 billion through new listings as of December 29, against $31.4 billion raised in New York, according to data provider Dealogic, which tracks IPOs in major markets.

London took the third spot with $18.1 billion, while companies raised a combined $42.4 billion in China's Shanghai and Shenzhen bourses.

Final official figures on IPOs, which are issued by the World Federation of Exchanges, are expected in the next few weeks.

It was a bumper 2011 for Hong Kong, with big-name IPOs from Italian luxury fashion house Prada, US handbag maker Coach, luggage-maker Samsonite, and Swiss commodities giant Glencore, which made the year's biggest share sale.

More was to come with Chow Tai Fook Jewellery Co., the world's largest jewellery chain, making its $2.0 billion debut, while shares in local second-hand handbag retailer Milan Station were more than 2,000 times oversubscribed.

Yet despite the deluge of stock debuts, the funds raised fell nearly 47 per cent below 2010's $67.9 billion harvest, according to Dealogic.

Worse still, analysts say the knock-on effect of wider global economic problems has since ground down the value of the new shares issued.

"Overall the economy is doing poorly due to the euro debt crisis and the US economy, so the Hong Kong market and investor sentiment has also been affected," said Philip Mok, research analyst at Hong Kong's Phillip Securities.

"Most of the IPOs only did well in their first few days of trading and are now trading below their IPO price," he added.

Milan Station ended the year's trading on Friday closing down 0.75 per cent at HK$1.33 ($0.17), compared to its HK$1.67 IPO price. Prada closed at HK$35.15, also well below its HK$39.50 offering price.

The Hang Seng Index fell 20 per cent over the year.

Analysts say the gap between 2011 and the previous year may not be as stark as it seems, as share sales by Asian insurer AIA and Agricultural Bank of China, raising a combined $42.6 billion, skewed the 2010 figures.

Hong Kong's attraction as an IPO destination can largely be traced to Beijing's move to privatise some state-owned enterprises, although many were laden with crippling debt and questionable balance sheets.

"The larger companies in China have mostly listed and we are now seeing the second wave of mid-tier companies seeking to list," said analyst Arjan van Veen of Credit Suisse, on the shrinking funds seen in 2011.

Firms that shelved plans to list in Hong Kong include Shanghai-listed China Everbright Bank, which was aiming to raise up to $6 billion, and Australian miner Resourcehouse, which planned to raise $3.6 billion.

"It will be tough for Hong Kong in terms of IPO fundraising at the moment since the global economy is not so satisfactory," said Timothy Li, senior research analyst at investment bank Core Pacific-Yamaichi International.

Fears over a slowdown in China, threatened by the eurozone turmoil that could drag the global economy back into crisis, may also quell the appetite for IPOs.

"The market sentiment in China and in Hong Kong... may affect the amount of fundraising and therefore some companies will think twice before deciding on listing here (in Hong Kong)," Li added.

But the Hong Kong bourse, which said it has a "good chance" to remain top of IPO table, downplayed fears over its attractiveness for new listings.

"Regardless of its ranking, the most important thing is Hong Kong has established itself as one of the world's leading capital formation centres," a spokesman said.

Phillip Securities' Mok is optimistic for the coming year, citing several new Hong Kong listings said to be in the pipeline, including "Angry Birds" maker Rovio and London-based jeweller Graff Diamonds.

"The China economy is likely to do better than the US in the coming year. This isn't the end yet for the story of China.

"Surely there will be big challenges but I still have faith in Hong Kong," he said.

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