It is harder for Chinese companies to sell shares internationally By Dave Sebastian June 14, 2023 5:30 am ET Nearly 90 companies have active listing applications for the Hong Kong exchange’s main board, as of May 31. Photo: philip fong/Agence France-Presse/Getty Images International investors have soured so much on Chinese initial public offerings that investment banks are backing out of potential listings and even small deals have become a tough sell. Goldman Sachs Group GS -1.19%decrease; red down pointing triangle has given up several mandates for IPOs in Hong Kong this year, including deals for a dermatology company and an online marketplace for pharmaceutical products, according to filings with the city’s stock exchange. Bank of America BAC -0.95%decrease; red down pointing triangle has left its role in the coming IPO of Growatt Technology, which makes inverters for solar panels. Banks seldom relinquish IPO mandates after receiving them. The moves reflect how difficult the market is for Chinese companies that want to go public on international stock exchanges. Nearly 90 companies have active listing applications for the Hong Kong exchange’s main board, according to official figures as of May 31. But falling stock prices, heightened political tensions between Washington and Beijing and China’s sputtering economic recovery have been turnoffs for many global investors. New and secondary listings in Hong Kong have raised $2.05 billion this year, down 12% from a year earlier, a far cry from the city’s IPO volumes in years past. The average deal size so far in 2023 has been about $80 million, according to Dealogic data. Hong Kong’s Hang Seng Index rallied in January, after investors bet on a rapid economic recovery following the end of China’s strict zero-Covid policies. But the index, which includes many of China’s largest companies, has fallen more than 14% since closing at its highest level this year on Jan. 27. “Forget about IPOs—they can come, but I don’t think they can get close to what they’re wishing for in terms of valuation,” said Albert Kwok, an emerging-markets portfolio manager at Jennison Associates. Advertisement - Scroll to Continue Even small listings with an obvious sales pitch have faltered recently. Star Plus Legend Holdings, which makes a type of diet coffee, postponed its $101.8 million Hong Kong IPO last week after launching its stock sale. The company was co-founded by the mother of Taiwanese pop star Jay Chou and owns intellectual-property rights to a reality show he stars in, as well as other events and content centered around him. Goldman chose to back away from the IPOs of YSB, a Chinese company that operates a pharmaceutical marketplace for businesses, and Shanghai-based Cutia Therapeutics, which specializes in skin treatments. The New York-based bank viewed the current market demand to be too weak for the listings to do well, according to people familiar with the matter. In April, Goldman also stepped back from its role as an overall coordinator in the IPO of Beijing Fourth Paradigm Technology, an artificial-intelligence company that was added to an export blacklist by the U.S. Commerce Department in March. Goldman advised YSB and Cutia to wait until market conditions improve, the people said, but the companies ultimately chose to push ahead. Cutia raised $59.4 million from a Hong Kong listing that priced last week. It came in near the bottom of its price range. YSB, backed by U.S. investment firm Tiger Global Management, is planning to launch a deal Thursday. Shenzhen-based Growatt Technology, the solar products company, last year postponed its listing plans and is planning to relaunch its IPO. Bank of America Merrill Lynch had been coordinating Growatt’s listing attempt, but is no longer involved in the current deal. Star Plus Legend Holdings, co-founded by the mother of Taiwanese pop star Jay Chou, recently postponed its $101.8 million Hong Kong IPO. Photo: Getty Images Many deal makers now have a gloomy outlook for the IPO market this year, after starting 2023 with a sense of optimism following the end of zero-Covid. They say policy stimulus from China, a continued rise in stock prices elsewhere and more clarity about American interest rates are among the prerequisites for deals to return. Among the IPOs in the pipeline for Hong Kong are spinoffs from Chinese e-commerce company Alibaba Group Holding and smaller rival JD.com. Still, carve-out IPOs aren’t a good barometer to measure the appetite for new listings, said Andrew Swan, head of equities for Asia excluding Japan at Man GLG. Nor do they show much optimism among the companies themselves, he said. “If companies felt there was a lot of growth left, they wouldn’t be doing this,” Swan said. “It’s a sign of the times in that the way they create shareholder value now is to restructure.”
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