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China tech

Baidu raises $3.1bn in Hong Kong 'homecoming' listing

Bilibili starts $3.2bn offer as China tech companies take shelter from US blacklist fears

Baidu is preparing to list on Hong Kong's stock exchange   © Reuters

HONG KONG -- Chinese online search company Baidu will raise $3.1 billion in Hong Kong, while short video app Bilibili on Wednesday launched a similarly sized offering as mainland companies trading in the U.S. accelerate listings here.

The companies are pressing ahead with so-called "homecoming listings" in Hong Kong as Washington turns the screws on Chinese tech groups with new rules aimed at their investors, suppliers and customers.

So far this year, three Chinese companies have raised $4.6 billion via homecoming listings in Hong Kong, according to data compiled by Dealogic.

The deal pipeline is growing. New York-traded companies working on listings in Hong Kong include, Tencent Music Entertainment Group, Twitter-like service Weibo and e-commerce company Vipshop Holdings, according to people familiar with the transactions.

Bilibili, which counts Alibaba Group Holding and Sony among its backers, is selling 95 million shares in the offering to raise as much as $3.2 billion, according to a statement.

It has set a maximum price of 988 Hong Kong dollars for the retail portion of the transaction or a 12.3% to its closing price in the U.S. on Tuesday. It plans to price the offering on March 23 and debut in Hong Kong on March 29.

In Hong Kong, "there isn't any sort of sanction threat as there is in the U.S. and so if you are looking to raise money outside of the Great Wall, then Hong Kong is the preferred location," said market analyst Fraser Howie, co-author of the book "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise.

Baidu has priced shares at HK$252 per share, a 2.7% discount to its closing price on Tuesday on the Nasdaq Stock Market, according to a term sheet seen by Nikkei Asia. That compares to the maximum price of HK$295 it had indicated to retail shareholders last week.

When Baidu began preparations for its Hong Kong offering, it targeted raising $5 billion, people familiar said.

The institutional part of Baidu's offering of 95 million shares, which opened late on Thursday, was taken up in less than a day, according to a person familiar with the situation.

Demand for the 5% of the issue reserved for retail investors started more slowly than expected but rose late in the offer process. Retail orders for almost 100 times the share on offer were received, in line with multiples for several recent offerings.

U.S. authorities including the Treasury, Defense and Commerce Departments and the Federal Communications Commission have blacklisted Chinese companies, while the U.S. Congress last year passed laws that can kick Chinese companies off American exchanges unless U.S. regulators are permitted to review their financial audits. Beijing forbids such reviews, citing national security.

The FCC last week designated five Chinese companies, including Huawei Technologies and Hangzhou Hikvision Digital Technology, as posing a threat to national security under a 2019 law aimed at protecting U.S. communications networks.

This came just days after CNOOC, the largest Chinese offshore oil producer, was expelled from the New York Stock Exchange to comply with an executive order issued by then-President Donald Trump last November regarding U.S. investment in companies found to have ties to the Chinese military.

While most blacklisted Chinese companies are state-owned enterprises, Baidu has looked vulnerable since phone maker Xiaomi was put on the military-linked list in January. Officials disclosed last month that the designation related to a state award given to Xiaomi's founder and the company's ambitious investment plans in artificial intelligence and 5G technology.

Xiaomi, however, won a court order last Friday freezing its designation, with a judge ruling that the move had not been well justified.

China Mobile, China Telecom and China Unicom (Hong Kong) were removed from New York trading in January. While all four companies have sought a review, analysts and lawyers do not expect the blacklisting to ease.

Escalating geopolitical tensions "shed some doubt and uncertainty to the future prospects of Chinese tech, media and telecom companies listed in the US market," said Wilson Chow, TMT industry leader at consultancy PwC.

Such uncertainty is set to spur secondary listings in Hong Kong and push others eyeing a listing in the U.S. to pick the Hong Kong Stock Exchange, which has enacted a series of rules in the past few years to make it easier for listings, he said.

Baidu's shares have dropped almost a fifth from a February peak. Investors have switched from tech to cyclical stocks such as financials on hopes of an economic resurgence. Chinese technology stocks have borne the brunt of the selloff hurt by a regulatory clampdown in the mainland.

Baidu's pricing comes just days after Chinese car sales website Autohome raised $688 million through a secondary listing in Hong Kong, about a third lower than originally expected.

Shares in Autohome, which listed in the city on Monday, have risen 4.3% so far.

Bilibili, which secured the Hong Kong stock exchange listing committee's approval for a stock sale in the city last week, has dropped almost a third from its peak in New York.

The MSCI China Tech 100 Index, which tracks the largest Chinese technology companies listed in the mainland, Hong Kong and overseas markets such as the New York Stock Exchange and the Nasdaq, has dropped 21% from its Feb. 16 peak. In comparison the Nasdaq Composite has declined 4.5%.

A combination of factors are driving the barrage of listings, said Philippe Espinasse, founder of consultancy P&C Ventures and former head of equity capital markets at Nomura, including high liquidity and the fact that many of these listings will have been in the works for some time.

He said there was also a seasonal factor. "Companies with a December financial year end can now conduct such listings on the back of their yearly accounts," he said.

Cash in Hong Kong's banking system was at HK$ H457 billion on Tuesday, near record levels, driven in part by global appetite for new listings in the city.

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