FinanceAsia Magazine

Issue: June 2016


China’s crackdown on money leaving the country is making it harder for mainland companies and individuals to funnel money into Hong Kong IPOs – which is no bad thing. 

Mainlanders have not always focused on the pricing of IPOs, but rather their broader relationship with the listing candidate. This has earned them the moniker ‘friends and family’ investors. 

This practice has often resulted in poor performance and a lack of liquidity in the stocks’ aftermarket, analysis by data provider Dealogic and FinanceAsia shows. 

This is no small matter, given Hong Kong is the biggest IPO venue in the world year-to-date. 

In the past, if global investors thought a Hong Kong IPO was overpriced the deal failed; nowadays the listing lives on using mainland money as a crutch.

Mainlanders have been heavily using Hong Kong’s unusual system of so-called cornerstones to buy in before the launch of an IPO. 

So far this year, cornerstones have accounted for 40% of IPOs, the largest ever share for the period. Last year, cornerstones also propped up IPOs in record volumes, according to Dealogic.  

This unhealthy system has survived, in part, because advisers fiercely compete for lucrative IPO fees and have not held the line on preventing overpriced deals hitting the market. The Hong Kong bourse also benefits from garnishing listing fees. 

It took a crackdown by China’s regulators, who were seeking to alleviate pressure on the renminbi earlier this year, to put pressure on this cosy arrangement. The price of using China’s Qualified Domestic Institutional Investor scheme to shift money offshore has risen sharply, market sources say.

To be sure, many mainland companies have cash offshore from overseas operations or proceeds from bond issues they can still invest in IPOs. 

However, financial practitioners should not wait for regulators to take further action before acting to help return pricing discipline to Hong Kong IPOs.


About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

Our regular sections include:

Data Story
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

Investor Dialogue
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.

A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.

People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

Deal Tracker
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.


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