* Equity fees set to jump on bumper year for HK, China IPOs
* Power Assets utility IPO cutback shows investors picky
* Bumpy start but 2014 seen 2nd biggest for mainland IPOs
By Elzio Barreto
HONG KONG, Jan 15 After three lean years, Hong
Kong bankers are looking forward to a surge in fees in 2014 as
the city regains its swagger with a slew of big-money initial
With the value of IPOs in Hong Kong seen doubling to over
$32 billion this year as major economies pick up steam, Greater
China could account for more than half of all 2014 investment
banking fees for the Asia-Pacific region, excluding Japan.
An upsurge in debt offerings and a cautious restart for IPOs
in mainland China will also fuel a rise in first-half revenue at
investment banks. Since 2009 and 2010, when a bumper crop of
deals helped Hong Kong overtake New York as the world's biggest
IPO market, banks have seen equity issuance and fees shrivel.
Tycoon Li Ka-shing's Power Assets Holdings Ltd is
leading the pack of 2014's mega-deals with the planned sale of
up to $3.6 billion of shares in an electricity business later
this month. Handling the sale and booking most fees from it will
be Goldman Sachs Group Inc and HSBC Holdings PLC
While last year was depressed in terms of IPOs, Greater
China still accounted for 49 percent of Asia-Pacific ex-Japan
investment banking fees, according to Thomson Reuters/Freeman
Consulting Co estimates. About 36 percent of the $9.86 billion
in fees came from equity deals, the data show.
Advisory firm PwC estimates Hong Kong IPOs could raise $32.2
billion in 2014, the highest since 2010 and nearly double the
2013 tally of $17.1 billion. That would make 2014 the
fourth-biggest year on record for new listings in the city,
Thomson Reuters data show.
With economic activity improving in the United States, Japan
and some countries in Europe, risk appetite and demand for new
listings is expected to grow in 2014, benefiting Hong Kong and
China listings, analysts said.
"Sentiment will be good for IPOs this year," said Jasper
Chan, corporate finance officer at brokerage Phillip Securities,
which provides margin loans to retail investors looking to buy
into IPOs. "You can see from the margin amounts, how deals are
oversubscribed sometimes more than 1,000 times. You can see how
hot the IPO market is now."
INVESTORS STILL PICKY
Deals expected this year include a $5 billion listing from
Chinese meat processor Shuanghui International Holdings, and
offerings from health and beauty products retailer A.S. Watson &
Co Ltd and e-commerce giant Alibaba Group Holding Ltd.
Shuanghui International's deal is expected for the first
half of the year. An Alibaba IPO of around $15 billion could
take place in the second half of the year at the earliest, with
Hong Kong considered a possible location.
Goldman Sachs and HSBC are handling the A.S. Watson listing
and other stock sales as well as the Power Assets deal.
Other banks likely to benefit from the surge include Morgan
Stanley, which is handling the Shuanghui deal with Citic
Securities Co and UBS. Citic should also
benefit from its position as top underwriter of new listings in
While the deal pipeline is full, Power Assets' decision to
cut its targeted proceeds by about a third provided evidence
that IPOs will still need to be pitched accurately. The Power
Assets move reflected a lower valuation on the asset being sold,
and also a decision by the parent to retain a bigger slice of
"It is still a buyers' market. Investors will continue to be
choosy," said Philippe Espinasse, a former equity capital
markets banker at both UBS and Nomura. "Issuers will need to be
realistic on valuations and, importantly, will need to get
support from cornerstones to get deals done," said Espinasse,
author of "IPO: A Global Guide".
In Hong Kong, IPO bankers typically secure groups of
institutional investors who commit to deals, acting as their
The gradual, bumpy resumption of IPOs in Shanghai and
Shenzhen will also ultimately provide a boost to deal volumes in
Asia-Pacific region after zero activity for more than one year
Chinese companies could to raise 250 billion yuan ($41.3
billion) from new listings in Shenzhen and Shanghai exchanges in
2014, according to a PwC forecast. That level would make it the
second-biggest year on record for IPOs in mainland China, though
the early days of the restart have been troubled.
The first batch of about 50 companies to list in China in
January alone should bring in 44 billion yuan in proceeds,
consulting firm EY estimated last month.