Source: Broker China Author: Tan Chudan
Enthusiasm for going public in Hong Kong continues unabated.
On April 5, a Hong Kong stock IPO company announced the addition of 2 “overall coordinators” to 4. This is the 13th Hong Kong stock IPO company to announce the addition of an “overall coordinator” since this year. The number of companies has nearly doubled compared to the same period last year.
In an interview with reporters, a Chinese brokerage firm said that with the recovery of the Hong Kong IPO market, more companies hope to seize the opportunity to go public, but in the context of increased market competition, issuers hope to strengthen the effectiveness of stock sales and fund-raising by expanding the power of “overall coordinators.”
Looking back at the first quarter of this year, the Hong Kong stock IPO market had both joys and worries. The number of listings and the scale of fundraising both declined, but the effect of making new money was obvious. Some interviewees predicted that it may be more difficult to sell new shares compared to last year, especially in attracting more investors and ensuring the performance of stocks after listing. If the Hong Kong stock market continues to improve, the IPO offering will be impressive.
As more investment banks use the new “overall coordinator” approach to share the Hong Kong stock IPO project, competition among underwriters is expected to further intensify. Some industry insiders believe that investment banks need to provide more differentiated services.
It is beneficial to strengthen stock sales
On April 5, Jiangsu Guofu Hydrogen Energy Technology & Equipment Co., Ltd. (hereinafter referred to as “Guofu Hydrogen Energy”) announced that CCB International and CITIC Construction Investment (International) will be further appointed on the basis of the appointment of Haitong International and CITIC Lyon Securities as the “overall coordinators” of the company's IPO. Up to now, the company has 4 “overall coordinators”.
The reporter noticed that the phenomenon of IPO companies hiring additional “overall coordinators” occurs frequently. According to the reporter's statistics, including Guofu Hydrogen Energy mentioned above, 13 Hong Kong stock IPO companies have announced the addition of “overall coordinators” this year. In the same period last year, there were only 7.
The so-called “overall coordinator” means that he is mainly responsible for the global sale of IPOs, and has the right to recommend allocations and exercise excessive allotments. Shi Qi, executive head of the capital market department and managing director of CICC's capital market, said in an interview with reporters that the “overall coordinator” must have full understanding and rich experience in the Hong Kong stock IPO market, have expertise in industry and industry knowledge, and also have extensive and in-depth coverage of Hong Kong stock investors, as well as perfect compliance management system regulations and requirements.
While analyzing the reasons for the frequent hikes mentioned above, a relevant person from Galaxy International, a subsidiary of China Galaxy Securities, said in an interview with a Chinese broker that the Hong Kong IPO market is recovering, and more companies want to seize the opportunity of market improvement to go public. As market competition intensifies, companies need to strengthen stock sales and marketing efforts by hiring additional coordinators to improve the success rate and fund-raising effectiveness of IPOs. At the same time, considering that mainland companies have become the main force in the Hong Kong IPO market in recent years, these companies may need more overall coordinators to help deal with the differences in the cross-border regulatory and market environment.
The above sources also added that the move to hire additional coordinators could also improve the efficiency of regulatory cooperation. According to the new rules of the Hong Kong Stock Exchange, issuers of initial public offerings on the main board must appoint a sponsor and overall coordinator for at least two months before submitting a listing application to balance the risks and benefits of the sponsor. On the one hand, the additional project coordinator can mobilize the resources and functions of the new coordinator to serve the project, and on the other hand, it also helps to better meet regulatory requirements and improve the transparency and risk controllability of the project during the issuance process.
Up to now, the two IPO companies, Michelle Ice City and Junda Co., Ltd., have the largest team of “overall coordinators”, with 5 agencies each “escorting” them. According to reports, the former originally hired Merrill Lynch, Goldman Sachs, and UBS, then added CICC and Huatai Financial Holdings. The latter originally appointed Huatai Financial Holdings, CMB International, and Deutsche Bank, and soon appointed CITIC Lyon Securities and CICC.
Furthermore, the four companies (Belle Fashion, Ark Yunkang, and Tongyuankang Pharmaceutical), including Guofu Hydrogen Energy mentioned above, now each have 4 “overall coordinators” after appointing additional investment banks.
Underwriting competition intensifies
For investment banks, the phenomenon of IPO companies hiring additional “overall coordinators” is both an opportunity and a challenge. On the one hand, opportunities for investment banks to “share” in IPO projects have increased, and on the other hand, competition in the underwriting market has further intensified, putting higher demands on investment banks' capabilities.
According to the reporter's statistics, the 13 IPO companies mentioned above added a total of 14 additional investment banks as “overall coordinators.” Among them, CICC appeared the most frequently, and it became the “overall coordinator” of the 3 IPOs. Deutsche Bank, CCB International, CITIC Lyon Securities each became “new members” in 2 IPO projects.
As more investment banks use new “overall coordinators” to take charge of Hong Kong stock IPOs, the game between underwriters may become more intense.
In response, Galaxy International stakeholders admitted that it may indeed increase competition among underwriters. As more companies enter the market to seek listing services, underwriters may face a more competitive environment in the market to compete for business. This competition may be expressed in terms of rates, quality of service, brand reputation, and value-added services.
According to this source, investment banks need to adopt multiple strategies when dealing with this trend. He mentioned the need to provide differentiated services to differentiate from other underwriters by providing unique services or expertise, such as focusing on a specific market segment or industry to provide customized solutions. Or to highlight his own strengths, he used Galaxy Securities and its overseas subsidiaries as an example. The company has specific advantages in terms of network and layout in Southeast Asia. The company analyzes the specific situation of the project, and pays special attention to IPO projects with business needs or marketing in Southeast Asia.
In addition to reflecting differentiation, the people mentioned above believe that it is also necessary to strengthen cooperation networks, improve work process efficiency and quality, enhance customer relationship management, increase technical investment, strengthen brand building, ensure regulatory compliance, manage costs well, and continue training and development. These measures will also help cope with market competition and provide customers with more professional and efficient services.
Hong Kong Stock IPO Sales Outlook
Since this year, the Hong Kong stock IPO market has had both highlights and difficulties. On the one hand, the number of IPOs and the amount of capital raised have both declined, and on the other hand, new earnings are impressive. Relevant sources shared with reporters their predictions on how difficult it will be to issue and sell new shares in the Hong Kong stock IPO market this year.
Shi Qi mentioned that the Hong Kong stock market still has plenty of IPO reserve projects this year, including companies that have submitted their forms for the first time to go public, as well as companies that are preparing to try listing again.
In his view, the degree of difficulty in selling IPOs is highly correlated with factors such as secondary market performance and investor sentiment. If the Hong Kong stock market continues to improve, it will be beneficial to the IPO market.
Relevant sources from Galaxy International said that only 12 IPOs were listed in the first quarter of this year. However, the market began to pick up in March. The average number of subscribers and average subscription multiples for the 10 IPOs listed in that month far exceeded the previous period. There were occasional subscriptions of 100 times more, and the overall average performance after listing was better than the same period last year, indicating that the market is still enthusiastic about IPOs. However, in terms of the number and scale of IPOs issued, they decreased by 29.4% and 27.3%, respectively, compared to the same period last year, which means that although market demand still exists, overall sales difficulties may increase compared to last year, especially in attracting more investors and guaranteeing performance after stock listing.
“In the current complex and changing market environment, we should maintain a cautious and optimistic attitude, respond positively to market changes, and make corresponding strategic adjustments to ensure that the sales of new shares can be effectively completed in the Hong Kong stock IPO market.” The person said.
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