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Speculation over Alibaba listing delay casts shadow on Hong Kong

Valuation worries likely to keep prospective IPOs away for now, analysts say

The Hong Kong Exchanges and Clearing flag, left, flies in front of the company's headquarters in Hong Kong. (Photo by Ken Kobayashi)

HONG KONG/TOKYO -- Stock market watchers have voiced concern over a possible slowdown in Hong Kong initial public offerings this year following a report that Alibaba Group Holding will postpone its listing amid political unrest in the Asian financial center.

"The valuation of Hong Kong's stocks has fallen significantly," said one analyst with a leading investment bank in Hong Kong.

The analyst, who asked not to be named, told the Nikkei Asian Review that the territory's capital markets already had been depressed by concerns over the U.S.-China trade war and that the political uncertainties have further dampened investor sentiment.

The turmoil in Hong Kong comes amid fierce competition among global exchanges for tech IPOs. Just last year, Hong Kong Exchanges & Clearing revised its listing rules to allow the kind of shareholding structure favored by many unicorns -- unlisted companies worth over $1 billion.

Reuters reported Wednesday that New York-listed Alibaba has delayed its up to $15 billion secondary listing in Hong Kong, which was scheduled to take place later this month.

The report cited unidentified sources as saying the leading Chinese e-commerce group made the decision based on the lack of financial and political stability in Hong Kong, where pro-democracy demonstrations have lasted for more than 11 weeks and show no sign of winding down.

Alibaba declined to comment. But analysts said the reported delay is no surprise and that they expect more companies to follow suit.

Hong Kong's benchmark Hang Seng Index is down roughly 5% since June 10, the first session after the protests began over an extradition bill. Declines have hit some of Asia's most valuable companies, with Chinese internet group Tencent Holdings falling about 3% since the unrest started.

"If companies think they deserve a better valuation, they won't float on Hong Kong right now," the analyst said. In addition, concerns over personal safety have prevented high-level executives from coming to the city, which threatens to slow IPOs in the pipeline further, he said.

Last month, the Hong Kong Stock Exchange suffered a blow when top global beer company Anheuser-Busch InBev pulled the planned listing of its Asia-Pacific unit, in what would have been the world's largest IPO of 2019. The brewer blamed "prevailing market conditions" alongside other factors for its change of plan.

In an email reply to the Nikkei Asian Review on Wednesday, a spokesperson from Hong Kong Exchanges and Clearing dismissed analysts' concerns, saying that "we have a healthy IPO pipeline."

Nearly 70 companies went public on the Hong Kong exchange's main board during the first half of 2019, the highest number in the past five years, according to financial consultancy KPMG. Hong Kong will gain a spot among the world's top three IPO markets during the second half if the Alibaba listing materializes, Paul Lau, head of capital markets at KPMG China, told reporters during a conference in June.

As Hong Kong's protests have become increasingly violent, more than 20 countries have issued travel warnings. Hong Kong International Airport -- one of the busiest in the world -- was forced to shut down for two consecutive days last week as thousands of protesters swarmed the terminals.

"Some executives might feel it is too troublesome to visit Hong Kong. Why not wait a bit?" said the analyst who asked not to be named.

Whatever the reason, Alibaba's reported IPO delay would likely raise a red flag for other companies, said Brock Silvers, managing director of investment company Kaiyuan Capital in Shanghai.

"The company is a very politically astute market bellwether, and a delay can only increase market headwinds," Silvers said. "Mainland companies may pay particular attention to Alibaba's decision, and other foreign markets may not be as tempting."

Hoshiyuki Takahashi, manager of KPMG China's Hong Kong team, notes that some companies already listed on the market have begun to show concern.

"Some firms are starting to conduct feasibility studies on whether it would be better to delist from Hong Kong and instead head somewhere else," he said.

Takahashi added that "the pace of IPOs [in Hong Kong] is also likely to slow."

But others are more optimistic.

Kyoya Okazawa, Asia-Pacific head of institutional clients and global markets at BNP Paribas Hong Kong, said that the city will remain a strong financial hub, despite the current turmoil.

"Companies may postpone their listing but not cancel," he said. "I believe many are just waiting for the protests to calm down and the market conditions to improve."

Nikkei Asian Review deputy editor Zach Coleman and Nikkei staff writer Benny Kung in Hong Kong contributed to this report.

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