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Nikkei Markets

HKEX sees 'big' virus impact on new listings after bittersweet year

Exchange remained world leader in IPOs in 2019 but failed in an ambitious takeover bid

Budweiser Brewing Co. APAC raised over 45.1 billion Hong Kong dollars in one of the city's biggest listings last year.   © Reuters

HONG KONG (Nikkei Markets) -- Hong Kong Exchanges & Clearing sees the coronavirus having a large impact on new initial public offerings in the first half of 2020 after an eventful year, during which the market operator's role as a gateway connecting China with the world paid dividends but an ambitious takeover plan failed to fructify.

The exchange, which last year retained its crown as the world's largest marketplace for new stock flotations, had 21 IPOs in January before the virus outbreak gained global proportions.

Chief executive Charles Li told reporters on Wednesday that HKEX sees the epidemic having a "very big impact" on new issuances in the first half, although he noted that most IPO deals have historically taken place in the second half of a calendar year.

"It has something to do with our regulatory requirements. So the first half of a year is not the IPO peak season. It is the low season," Li said. "We have great resilience the deals could be postponed, but for the full year, it is still early to reach a conclusion."

Newly listed companies had raised a total of HK$314.2 billion ($40.32 billion) in Hong Kong in 2019, well ahead of Shanghai and Nasdaq, which ranked second and third, respectively. Hong Kong retained its ranking even as the city endured mass anti-government protests during the last seven months of the year. Alibaba, which raised a total of HK$101.2 billion ($13 billion) from its secondary listing, and Budweiser Brewing Co. APAC, which raised HK$45.1 billion, were the two biggest by funds raised.

Li was speaking on a call after the company, which also owns the London Metal Exchange, reported a 1% increase in last year's profit to HK$9.39 billion. Revenue and other income rose 3% year-on-year to HK$16.31 billion. Net investment income jumped 72.3% to HK$2.73 billion, helped by fair value gains on its financial assets.

In its third-quarter earnings report, HKEX had recognized a HK$130 million charge related to the failure of its audacious $36.7 billion bid to acquire the London Stock Exchange Group, which was rebuffed.

Looking ahead, the company on Wednesday said it plans to manage costs prudently.

Shares of HKEX closed 0.8% lower at HK$259.80 in Hong Kong following the results, while the city's benchmark Hang Seng Index declined 0.7% to 26,696.49.

Li said that while HKEX faced a challenging backdrop amid the virus outbreak, ongoing Sino-American trade tensions and slowing Chinese economic growth, it was keeping its focus on executing a three-year strategic plan. The plan, covering 2019 to 2021, is aimed at better connecting China with the world and strengthening the exchange's core business by leveraging technology.

In addition to new listings, HKEX's performance last year was also aided by higher income from the electronic links connecting the local stock exchange with bourses in Shanghai and Shenzhen.

The exchange benefited last year following the inclusion of mainland listed A-shares in global equity indexes compiled by MSCI, FTSE Russell and S&P Dow Jones. Total northbound turnover, or trading in A-shares via the links, more than doubled to a record 9.76 billion yuan ($1.39 billion) a day on average.

HKEX also operates the bond connect, a similar trading link that allows international investors access to the mainland bond market, through a joint venture with the China Foreign Exchange Trade System. The average daily turnover via its bond connect program nearly tripled to 10.7 billion yuan.

The exchange operator recommended second interim dividend of HK$2.99 per share, maintaining full year payout at the 2018 level of HK$6.71 per share.

- By Benny Kung

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