The world's second-largest initial public offering, shelved by Budweiser just two months ago, prices in Hong Kong on Monday, raising hopes among issuers that the Asian exchange's stalled market for public share offerings may return to life after its worst summer in over six years.
Budweiser Brewing Company APAC, a unit of Anheuser-Busch InBev, began marketing its up to $4.8 billion offering last week. But it is not the only company looking to issue stock on the Hong Kong stock market, which has launched a surprise bid for the London Stock Exchange despite three months of running street protests.
ESR Cayman, a logistics and real estate developer backed by private equity firm Warburg Pincus, refiled its draft prospectus this month. Consumer lender Home Credit has begun premarketing for an over $1 billion offer, people familiar with the matter said. Topsports International Holdings, the sportswear retail unit of China's largest women's shoe seller, is also premarketing a $1 billion issue. Artificial intelligence company Megvii Technology is reportedly looking to raise as much as $1 billion in its offering as well.
Hong Kong's pipeline of IPOs is at a "historically high level," KPMG wrote in a research note on Thursday. If those offerings come to fruition, it would mark a near-complete reversal from the drought this July and August when just $1.6 billion was raised, compared with $11.5 billion over the same period last year.
Hong Kong's stock exchange, which in its $37 billion bid for the LSE touted its importance as Asia's premier financial market, was the top IPO destination globally in 2018. But so far this year, amid the worst social unrest since the British handover of the city to China in 1997, 78 offerings worth about $17 billion have been shelved or postponed, Dealogic estimates.
The biggest of these was internet giant Alibaba Group Holding's planned $15 billion listing in Hong Kong.
Investors and bankers cite several reasons for the potential turnaround in sentiment. Stock valuations are lower; there is increased appetite for riskier assets amid global monetary easing and central bank interest rate cuts; issuers are being less ambitious about pricing; and there is a potential thaw in the trade war between the U.S. and China.
Bankers also argue that investors may be growing more optimistic as they start to see beyond the grim mood of Hong Kong's street protests to the city's long-term attractiveness as an investment destination, which includes its close cross-border financial links to China, liquid markets and a stable currency.
"All these factors have created something of a window in Hong Kong in terms of investor sentiment and appetite," said John Woods, the chief investment officer for the Asia Pacific region at Credit Suisse in Hong Kong. "That window is likely to last for the duration of the year. Hong Kong's medium- and long-term outlook from an equity and credit perspective is quite robust."
Crucially, issuers have become less ambitious. Anheuser-Busch is now hoping to raise half the $9.8 billion it sought two months earlier for its Asian beer unit. It has also promised a 25% minimum dividend payout and got GIC, the Singapore state fund, to take $1 billion of the offering.
"This IPO is conditional on the right valuation and the right market conditions," Jan Craps, CEO of Budweiser Brewing Company APAC, told reporters on Tuesday. "I do believe that we have a different situation. We are quite confident investor interest is there."
However, Craps also said that Budweiser could "theoretically" pull the offer again if pricing and investor interest do not come up to scratch.
Lower valuations are another reason for renewed investor interest. The Hang Seng Index lost a tenth of its value in July and August, ceding all its gains for the year. Although it staged a modest recovery this month, MSCI's Hong Kong Index still trades at 13.7 times future earnings compared with a 15-year average of 15.4 times, a discount that makes it more attractive for long-term investors.
Issuers have also scaled back their ambitions. Shanghai Henlius Biotech this week raised $410 million in the first major listing since July, but at the bottom of its pricing range. At the top end of the range, it would have raised $477 million.
ESR, after shelving a $1 billion issue in June, is also road-showing again and will meet investors next month, according to people familiar with the situation.
Potential issuers testing the market would certainly be a relief for the Hong Kong Stock Exchange and give a fillip to its plans to buy the LSE after a less than stellar year.
So far this year, 87 offerings worth $10.7 billion have been priced in Hong Kong compared with 202 deals worth $36.7 billion for all of 2018, according to Dealogic. That puts it behind the Nasdaq and the New York Stock Exchange as the destination of choice for IPOs globally and marks a reversal of roles from last year. Hong Kong has topped the table in three of the past four years.
Nonetheless, Hong Kong remains "a top destination for IPOs based on its strong fundamentals, despite a number of uncertainties affecting market sentiment and some IPO applicants adopting a more cautious, wait-and-see approach to proceed with their listing," said Paul Lau, head of capital markets at KPMG China.
Indeed, based on the IPO backlog, KPMG predicts an uptick in listings by the end of the year. It estimates more than 10 small to midsize active deals in the pipeline, all of which could see Hong Kong remain among the top three globally in terms of total funds raised in 2019.
"Hong Kong equity remains attractive to long-term investors due to its attractive valuation," said Marcella Chow, global market strategist at J.P. Morgan Asset Management. "Hong Kong's equity market dynamics are largely driven by ongoing trade tensions, global growth worries and easing by key central banks. While the immediate Hong Kong situation remains unclear, long-term investors should continue to focus on the intrinsic values of companies."