Chinese mainland firms cash in on Hong Kong IPOs

Hong Kong was the largest fundraising hub for Chinese mainland enterprises in the first 11 months of 2012, according to statistics from China Venture.

Its data showed that as many as 41 mainland enterprises were listed on the Hong Kong Stock Exchange's main board and raised 36.24 billion yuan (US$5.81 billion) from January to November, 94 per cent of the total amount raised by mainland enterprises during the same period.

The money mainland businesses raised in Hong Kong made up a large part of all capital raised through initial public offerings (IPOs) in the special administrative region. As many as 62 new listings brought in HK$89.4 billion (US$11.53 billion) in 2012, according to a report by the professional services firm Deloitte Touche Tohmatsu Ltd.

Analysts said high borrowing costs, long waiting times and high fundraising standards in the Chinese mainland are the biggest reasons why domestic enterprises favour the overseas market.

The annual interest rate on money borrowed from banks is usually around 7 per cent in the mainland, which is too high for many enterprises, especially small and medium-sized ones, said Ma Yaping, stock market analyst with Shanghai Jufeng Investment and Management Co Ltd. The rate can be as low as 2 per cent in Hong Kong, Ma said.

Enterprises that are in dire need of raising money to pay for expansion plans are also concerned about the length of time it takes to have an IPO approved on the mainland, Ma said.

The China Securities Regulatory Commission, the securities watchdog, has not approved a new issuance since October.

More than 800 enterprises in the mainland are now waiting for the regulator to approve their IPO applications so they can be listed in Shenzhen or Shanghai. If the average number of enterprises that have received approvals in past years is any indication, they may be kept on hold for another five years.

The looser requirements that apply to mainland companies seeking to go public overseas also appeal to Chinese enterprises, Ma said.

Among the enterprises that went public in Hong Kong in 2012 were People's Insurance Company Ltd (Group) of China, one of the world's largest insurers measured by premium income, which raised about HK$24 billion on December 7 in the biggest IPO in Hong Kong so far in 2012.

Many realty developers have also gone public in Hong Kong this year, including the Shanghai-based CIFI Group Co Ltd and Jiangsu Xincheng Real Estate Co Ltd.

To be listed in Shanghai or Shenzhen, a company must have made profits for three consecutive years. Hong Kong and other markets such as the United States, in contrast, allow companies to have temporary losses before holding public offerings.

On December 16, the securities regulatory commission said it plans to loosen the standards applying to mainland companies that are looking to go public in Hong Kong.

Guo Shuqing, the chairman of the commission, said it and its Hong Kong equivalent, the Securities and Futures Commission, have agreed to lower the size and financial requirements for companies that are seeking to be listed.

Under current rules, companies cannot hold IPOs on the mainland unless they are valued at more than 400 million yuan, and have more than 60 million yuan in net annual profits.