In recent weeks, Hong Kong’s moribund initial public offering market seems to have been perking up.
People’s Insurance Co. (Group) of China Ltd. is moving ahead with a proposing $3.6 billion listing, which would be the biggest in Hong Kong this year. Shanghai-based property developer CIFI Group raised around $265 million in a November 23 IPO. Two other companies are also expected to list soon: Future Land Development Holdings Ltd, another Shanghai-based developer, is seeking to raise $328 million and has already secured $80 million in cornerstone investments. Hong Kong restaurant chain Tsui Wah Holdings Ltd. is planning a $98 million IPO.
The burst of activity is undoubtedly welcome to capital markets lawyers. Hit by a combination of fears about China’s slowdown, the continuing eurozone crisis, and new regulatory scrutiny, Hong Kong capital markets have been in a swoon since the end of 2011. According to a KPMG report, Hong Kong IPOs this year raised $5.8 billion through the end of September, a massive drop from $25 billion during the same period in 2011. Last year was the third in a row that Hong Kong led the world in IPOs.
But few lawyers foresee a return to those buoyant days, despite the recent flurry of listings.
“This is probably more of a window than a comeback,” says Sammy Li, a Paul Hastings partner in Hong Kong. According to Li, the recent listings and IPO proposals are deals that have sat in the pipeline for a long time; they’re finally moving ahead because investment banks have recently managed to line up cornerstone investors to buy large blocks of shares.
Reed Smith Richards Butler partner Ivy Lai, who advised CIFI on its IPO, also doesn’t really see the beginnings of a recovery. “I don’t think next year will be booming, but whether it is going to be a plateau or a dip?” she says. “That remains to be seen.”
Colin Law, a partner with Shearman & Sterling who is advising Future Land, notes that the developers are listing in Hong Kong because austerity measures in mainland China have made it hard for property companies to raise money there.
“They are not indicative of what we would hope in terms of investor demand across industries,” he says.
For most companies, says Law, the situation is about the same as it was earlier in the year, not so great. “The underlying financials of many of the issuers have met significant headwinds,” he says, “making it somewhat challenging to see any full-blown recovery of investors’ confidence.”
Morrison & Foerster partner John Moore says those companies now listing may have also taken recent political events into account. “The market in general still lacks certainty, but now that the U.S. election is over and the China leadership has been confirmed, things are a little more stable,” he says.
The year has not been completely bereft of IPO activity in Hong Kong. The largest listing so far this year was that of Chinese securities company Haitong Securities, which raised $1.9 billion in April. There was also the $900 million raised by mining company Inner Mongolia Yitai Coal and the $579 million raised by Australian oil and gas explorer Sunshine Oilsands. In October, Fosun Pharmaceutical raised $510 million.
But most of those IPOs have proved disappointing, with Sunshine falling 40 percent since its March debut. The company earlier this month sought a secondary listing in Toronto to help make up for its Hong Kong underperformance.
Not everyone is ruling out the idea that things are starting to turn around. Gigi Woo, a Hong Kong partner with O’Melveny & Myers, counts herself as an optimist.
“I am aware that people are skeptical, but I think the market will come back in the second quarter [next year],” she says. “We think that these [IPOs] are positive signs for the market to turn around.”
She thinks the scale of the PICC listing could get investors off the sideline. “PICC will be an IPO with a very big value so, if that is successful, clients will be more confident about listing earlier next year,” she says.
Ken Martin, head of the China corporate practice at Freshfields Bruckhaus Deringer, agrees that a successful PICC listing could encourage other companies to head to market. But he thinks that would be a “limited and short-term only” effect. “In the long run,” he says, “I don’t think any single deal will likely impact anything except for the effect it has on that particular company and its shareholders.”
There is widespread agreement that the current down cycle in Hong Kong capital markets has been longer than usual, and many deals are in the pipeline, waiting for market conditions to improve.
Law thinks a recovery may have to wait until 2014, with activity beginning to pick up in the second half of 2013. “The passage of time will hopefully moderate investors’ expectations, while allowing the corporates to pick up the growth momentum,” he says.
“Until then, it’s going to be a longer quiet period,” adds Law.
That quiet period has been painful for law firms, many of which heavily expanded their capital markets just before the slide began.
“Some firms have been here for quite a while, so they know what is happening with the cycles,” says Moore. “But some other firms only moved in when the market is hot, so it will be interesting to see if the new entrants will be willing to ride out the prolonged downturn.”
Law thinks many firms have been overly focused on capital markets work in Hong Kong.
“Sure, it is a very profitable practice when the market is good,” he says. ”But this down- time is a bit of a wakeup call to those that don’t have balanced practices.” 
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