Hong Kong is set to cede the IPO crown back to New York. Deal flows from China are strong and global giants like to list close to the world’s biggest growth market. Hong Kong has proved its market is deep enough for big IPOs. But the listing process may have to be shorter and simpler if it is to get quickly back to the top.
Hong Kong managed to get a piece of commodity trader Glencore, the world’s largest initial public offering this year. But it was a wake-up call to lose the second-largest IPO, Hutchison Port Holdings, to Singapore. Hong Kong is on course to raise $28 billion by the end of this year, taking into account the $7.6 billion deals currently in the pipeline. New York has already raised $34 billion this year, according to Thomson Reuters data. Hong Kong isn’t short of IPO candidates. First and foremost, fast-growing Chinese companies need capital. In addition, shareholder lawsuits in America, following accusations of Chinese accounting problems, mean that local listing hopefuls may now consider Hong Kong the better option. New York investors’ aggressive short selling of tarnished stock assists Hong Kong’s expectations.
International companies are choosing Hong Kong because of China. Luxury goods makers like Prada and Graff Diamonds want to raise their profile among Chinese consumers via a listing in Hong Kong. Commodity companies are eager to be associated with the China growth story. Still, Hong Kong can’t afford to be complacent. As demand grows, there’s a danger that the efficiency of its listing process is being left behind. Take Glencore’s dual listing. It debuted in London almost a week before Hong Kong. Lengthy float processes make it harder to find a good window in volatile markets. True, Hong Kong must strike the right balance between attracting IPOs and protecting shareholders. If cautiousness costs it some deals in the short term, that may well be a price worth paying for the longer term health of its capital market. But as Hong Kong begins to show world-beating IPO credentials, its systems and processes need to be fit for its ambitions.