Long IPO drought ahead for fund managers in Hong Kong

It is looking like a dry summer for Hong Kong bankers, as market woes on the Chinese mainland threaten a revival in the city's new listings.

First-time share sales in the city jumped 50 percent in the six months to June to $17.8 billion, the busiest first half in at least a decade, Bloomberg-compiled data show. Mainland firms traded in Hong Kong entered a bear market this week, hurting potential listings of companies including the first Sino-foreign investment bank and China's biggest convenience store chain.

An IPO drought would deal a blow to investment banks, which have depended on Hong Kong as a major source of fees in Asia this year after the Singapore bourse failed to register a single offering above $25 million.

"It's going to destroy Hong Kong's IPO market," said Alex Wong, a Hong Kong-based asset-management director at Ample Capital Ltd, which oversees about $125 million. "I'd expect many of them to pull their listing plans."

Morgan Stanley has been the busiest arranger of Hong Kong equity offerings this year, with a 10.8 percent market share, according to data compiled by Bloomberg. UBS Group AG ranked second with an 8.8 percent share, followed by Goldman Sachs Group Inc.

The Hang Seng China Enterprises Index fell on Wednesday by the most since 2011, with only one of its 40 members advancing, and was 25 percent below its May peak. It rebounded 3.1 percent at the close of Hong Kong trading on Thursday and was trading at 8.2 times estimated earnings, down from a high of 10.4 times this year, data compiled by Bloomberg show.

Financial stocks have been hit the hardest in Hong Kong, which could hurt the prospects of companies that have been considering IPOs in the second half including Anbang Insurance Group Co, owner of the Waldorf Astoria hotel, and Postal Savings Bank of China Co, which has the most branches of any mainland lender.

The Hang Seng Finance Index has lost 12 percent in the past month, the biggest drop of any industry gauge in the city.

"The Hong Kong IPO market was supposed to see a huge uptick in the second half, but now we may have to wait," Paul Pong, managing director of Pegasus Fund Managers Ltd, said. "Many of those IPO candidates are likely to hold back, or they will have to accept a much lower valuation if they decide to go ahead."

China International Capital Corp, Morgan Stanley's former investment-banking partner in the country, planned to seek about $1 billion selling shares in Hong Kong this year, people with knowledge of the matter said in February.

China Reinsurance Group Corp, the nation's largest reinsurer, and Anbang were each planning $2 billion share sales, people with knowledge of the matter said. Bad-loan manager China Huarong Asset Management Co might seek more than $2 billion, while Postal Savings Bank was aiming to raise about $4 billion from offerings in Hong Kong and Shanghai, people familiar with the matter said.

China Petroleum & Chemical Corp has also been looking at an initial public offering for its retail business, which runs fuel stations and convenience stores.

Representatives for China Reinsurance and CICC declined to comment on their IPO plans, while a spokeswoman for Huarong said the company is in a quiet period and can not comment. Representatives for Postal Savings Bank and Sinopec did not answer calls seeking comment while a spokesman for Anbang said he could not immediately comment.