Hong Kong’s share sale bonanza isn’t all it appears, at least for the arrangers.
Bankers hoping for a bonanza from Hong Kong share sales by U. S.-listed Chinese companies should contain their excitement. Low fees and the hangover of the Luckin Coffee Inc. scandal are likely to put a damper on the rewards.
Hong Kong’s market for stock offerings is booming. Online retailer JD.com Inc. is raising as much as $4.1 billion in the world’s second-biggest share sale this year, days after internet gaming company NetEase Inc.’s $2.7 billion listing. There’s a line of candidates for Hong Kong flotations, driven by the prospect that the U. S. will delist companies that can’t commit to proving they are free from foreign government control.
That’s a boon for the city and its stock-exchange operator, after China’s plans to impose a national security law raised questions over Hong Kong’s future as an international financial center. The NetEase and JD.com offerings were both heavily oversubscribed by retail and institutional investors, showing the strength of demand for U. S.-traded Chinese tech companies. These and upcoming deals may not deliver the windfall to investment bankers that such a pipeline would usually promise, though.
For one thing, secondary listings earn a lot less in fees than initial public offerings. NetEase is paying the banks that worked on its Hong Kong flotation just 0.25% of the proceeds, compared with a standard rate for IPOs of 2% to 3%, as my colleague Julia Fioretti notes. Such deals earn less because the companies are already listed, meaning less work is required from banks to introduce their businesses to investors.
