Update | Three big China finance firms set to list in Hong Kong as stock market pickup eyed
Three giant state-owned financial companies are to land in Hong Kong for initial public offerings this month even though the receptions for the listings appears cool, market sources said, as Beijing pushes for diversified ownership reform over state-owned enterprises.
China’s state-owned debt clearing agency China Huarong Asset Management, investment bank China International Capital Corporation and China Reinsurance Group will invite institutional investors to road shows this week and next, a state-owned fund manager based in Hong Kong said.
Driven by a call from Beijing, these companies are on a mission to transform themselves into internationally competitive enterprises with diversified ownership structures, although they may have missed the best window to list in early June when the Hong Kong market joined Chinese indices which rallied to a 7-year peak, analysts said.
Brett McGonegal, the chief executive of Reorient, said “there are some issues more urgent than good timing” for these SOEs.
“There is always better timing, but what they want is to list in Hong Kong as early as possible,” said McGonegal. “The desire (from the SOEs) to come to Hong Kong and gain an exposure to the international market is very strong, as the central government pushed for reform.”
“By going public in Hong Kong, fresh capital and fresh entrepreneurship can improve their competitiveness,” he added.
“This is Beijing sending a message saying everything is fine, because it shows they are sticking to their reform plan and have not make fundamental changes,” he said.
Keith Pogson, senior partner, financial services, Asia Pacific at EY said Beijing is using the market dynamics to help create organisational reform.
“This often makes sense as they remain a majority shareholder in the business and as the rewards of market discipline play out they can further benefit from the economics through their majority stake,” he said.
Although the benchmark Hang Seng index has fallen 20 per cent from early June to date, and local investors’ sentiment is weak, brokerages said institutional investors, especially those from overseas, are interested in the new offerings.
Benny Mau, managing director of China Securities (International) Finance said the three companies are good representatives of China’s finance service industry, and are with “relatively ideal (for) development”.
“More importantly, for funds who need allocation to Chinese financial companies, now is a good buy opportunity, as valuations for these companies had been very high since late last year to this June, while now the pricing is more reasonable,” he said.
Joseph Tong Tang, executive director of Sun Hung Kai Financial said the current weak market sentiment is expected to be short-term and provides a good time to invest and prepare for the next rally.
“IPO is currently put on hold in the mainland so Hong Kong offers the best alternative,” he said.
China Huarong will start taking orders for a US$2.5 billion offering from next week, the Wall Street Journal quoted an unnamed source as saying on Tuesday.
Market sources said China Reinsurance plans to raise up to US$2 billion. CICC is expected to raise US$1 billion.
Huarong’s offer is smaller than that of China Cinda Asset Management Co., which went public two years ago in a US$2.8 billion IPO. But Cinda is now trading below its listing price, and at 5.59 times its 2015 earnings in Hong Kong.
Fund managers said Huarong has better quality assets than Cinda. Huarong last year sold a $2 billion stake to a group of investors, including COFCO, Goldman Sachs Group and Warburg Pincus.
China’s Ministry of Finance remains its controlling shareholder, the paper said.
