How China Is Bringing Hong Kong’s IPO Market Back to Life

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0:43At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience. Learn more at thehartford.com slash risk mitigation. Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. As industries evolve faster than ever, companies need an environment that accelerates strategic growth, and Michigan delivers on that promise.

1:17From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work-life balance. With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. Bloomberg Audio Studios, podcasts, radio, news. Hello? Hi there, Will. It's Juan. How are you? Pretty good. Pretty good. It's great to chat. Will Tsai is a partner at Cooley, one of the biggest law firms helping private companies looking to go public.

2:02He's been advising firms on their public listings in Hong Kong for almost 20 years. In the past, I worked on City.com, Square, those Asia companies. Tsai was involved in some of Hong Kong's biggest IPOs during the financial hub's wild heydays. But until recently, the city's IPO market was in the doldrums. You had COVID lockdowns, geopolitical tensions, and China's economic slowdown. All of that stalled company listings on the Hong Kong Stock Exchange. Two years ago, Hong Kong was quiet, nobody buying anything. You could go home at 6 p.m. and travel maybe once, twice a month. But since last fall, things started to shift.

2:46Hong Kong's IPO market has raised nearly$17 billion this year, about seven times more than the same period last year. The city is expected to end the year as the world's top venue for listings. Right now, you travel every week. The six-hours working day became 18-hours working day now. And that's been an upbeat note for Hong Kong's finance industry. The busier these people are, certainly the busier the markets are. And that's also been reflected into my own workload, to be honest. Dave Sebastian covers Asia's equity capital markets for Bloomberg from Hong Kong. We're definitely seeing a rebound in the markets in Hong Kong.

3:28The most prominent deal so far this year is the$5.2 billion listing of CATL, the EV battery giant, which is the biggest listing in the world this year. That happened in May, and that was such a watershed moment for Hong Kong's capital markets this year. So we're currently at$16.5 billion in IPO proceeds in Hong Kong. That's shaping up to be the highest in four years. And what we're seeing right now is a rebound in Hong Kong's capital markets with Chinese companies raising funds and with the support of Beijing itself.

4:16This is The Big Take Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever-shifting region. Today on the show, the rebound of Hong Kong's IPO market. How China is turning the city into a funding engine for mainland Chinese firms. and what a made-in-China recovery could mean for Wall Street banks and beyond.

4:48The city of Hong Kong, our home base, is known for its great food, towering skyscrapers, and a mix of cultures. Hong Kong was a British colony for more than 150 years, and it became a bustling financial center. Banks and foreign investors flock here, eager to capitalize on its strategic location as a bridge between China and the rest of the world. Hong Kong has always been a prominent capital hub, even before China took back control of it back in 1997. Global companies would come to Hong Kong to access China from here, like the likes of Prada and Samsonite. They would live here because much of their revenues, or a chunk of their revenues at least, came from Chinese customers.

5:35Bloomberg's Dave Sebastian says after the handover of Hong Kong to China in 1997, the city faced daunting challenges. There was the Asian financial crisis in the late 90s and the global financial meltdown in 2008. But for the most part, Hong Kong continued to be a gateway for global firms wanting to get in on the action in mainland China. Over time, that dynamic has changed. Chinese companies are now trying to tap into the global capital markets through Hong Kong. And how is Hong Kong different from the stock markets in China? It's a free market in Hong Kong. Compared to mainland Chinese exchanges where there are capital controls, in mainland China, companies could only raise the CNY.

6:22Whereas in Hong Kong, these companies can raise Hong Kong dollars, which is pegged to the U.S. dollar. and that allows them to convert them into various other currencies and raise funds to expand globally. So to recap, while Hong Kong is a Chinese territory, it has its own financial and monetary systems and generally looser controls. Its dollar-pegged currency and access to global markets like the U.S. attracted Chinese banks and tech giants like Alibaba and JD.com. But in 2020, investors got a warning that the party might not last forever. China putting the brakes on the world's biggest IPO. Ant Group's listing in both Shanghai and Hong Kong have been suspended.

7:07Back in 2020, Ant Group tried to list here in Hong Kong in what would have been the biggest IPO ever in the world. People were really, really looking forward to it. When the IPO was scrapped last minute, people were wondering, you know, what happened. It eventually turned out that it was because of Beijing's orders that the company was not allowed essentially to list here in Hong Kong and in Shanghai. And about a year and a half later, in June 2022, Didi, the Chinese rideshare company, delisted from the New York Stock Exchange under pressure from Beijing. Ever since, people sort of took those two instances as a signal that China was cracking down on private enterprise.

7:53And that was evident through the slump that followed after that. So 2022, 2053 especially, those were bad years for bankers and capital markets. Because suddenly after this deal bonanza of 2020 and 2021 especially, deals were very hard to come by. On top of that, COVID lockdowns and escalating tensions between Beijing and Washington added to Hong Kong's IPO winter. But late last year, bankers and investors saw a glimmer of hope. It started with the listing of this appliance maker called Mydea Group. It raised about$4.6 billion, and that was the biggest first-time share sale in years, really, in Hong Kong.

8:41That really was the first true test of having a deal of this size come to market, and that injected confidence. And then shortly after, China came out with stimulus measures to encourage consumption, and that further boosted confidence into the market. But most importantly, this IPO boom in Hong Kong comes with Beijing's stamp of approval. They're actually encouraging listings in Hong Kong. So that's actually a big part as to why this share sale boom is happening. It's happening because Beijing is on board. And that was also the reason why share sales didn't go through in the past two years. That was because Beijing actually was still trying to assess as to how they were to proceed after Ant and Didi.

9:30And so just to take a step back here, back in 2023, a new set of rules came out from China's securities regulator, basically asking Chinese companies that are trying to raise funds overseas to get its green light first. So they formalized this process, whereas back when Didi and Ant tried to list, there was no such formal process for them. We didn't need to get a green light then. No. So that's probably why these deals, after so much preparation, got pulled last minute. Fast forward to now, we're starting to see companies get approvals. And bankers are telling us that some of these companies are getting approvals fast.

10:10However, it's not really across the board. Beijing certainly favors certain types of companies more than others. And what we've seen so far this year is that they're approving more listings of companies that have already been listed in mainland China to raise funds here through first-time share sales. Listings in Hong Kong have raised about$17 billion this year, the most since 2021. That's created a boom for banks in the city, which have more than 200 IPOs waiting in the pipeline. But it's also raised the risk of a pushback from Washington, where lawmakers are increasingly questioning where Hong Kong ends and China begins.

10:53That's after the break.

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13:06Hong Kong has been an international launch pad for some of China's biggest and brightest companies this year. Take CATL. The battery giant listed here in May, raising more than$5 billion. Xiaomi, which makes everything from smartphones to electric vehicles, raised about$5.5 billion from a share sale in March. Bloomberg's Dave Sebastian says the bulk of these blockbuster IPOs all have one thing in common. These companies are companies that have already listed in mainland China, and they're pursuing another listing here in Hong Kong. And these are what the bankers and investors and the companies call A to H listings.

13:48They're called A to H because stocks listed in mainland China are called A shares, whereas the ones listed in Hong Hong Kong are called H shares. More than two thirds of the listing volumes in Hong Kong have come from these types of companies. It's definitely the highest it's been in a while. And this is much more compared to the past few years. For example, last year, these types of listings, like these A to H listings, accounted for just about half of the proceeds. In 2023, these listings just accounted for barely 2 % of the total volumes. These A to H listings are turning Hong Kong into a funding engine for mainland firms.

14:31And some analysts are worried that this rebound, driven by Chinese companies, could spark interference from Washington. Take CATL, which is the biggest listing in the world this year. That deal has been scrutinized so closely by U.S. politicians. Leading up to CATL's listing, one House committee in the U.S. basically wrote letters to JPMorgan and Bank of America to withdraw from their roles in these listings because of the alleged military links that CATL has in China, which the company has denied. Despite that, J.P. Morgan and Bank of America still went on with their roles in this listing. And that just shows that global banks are still keen to pounce on this growth in share sales and the Chinese market.

15:25J.P. Morgan CEO Jamie Dimon defended the bank's decision to work on the CATL listing. He spoke to Bloomberg on the sidelines of a company summit back in May. No, the government did not sanction CATL. There are legitimate issues around national security. We and other investment banks do a lot of due diligence around all the issues that people raised. And I'm sure I'll be criticized about that, too. But, you know, if we thought it was wrong, we wouldn't do it. Now, following the CATL scrutiny, do you think there would be more hurdles for banks, especially Wall Street firms, working on upcoming IPO listings here in Hong Kong?

16:04Certainly. And their scrutiny that they're getting from the U.S. is increasing. So after the listing of CATL, Bank of America and J.B. Morgan got subpoenas from the same committee that wrote them letters because these banks still went ahead. Yeah. Now, Dave, what's the market saying about whether this rebound will last? So certainly the bankers are telling us that they're as optimistic as they could be for the path forward. We're still seeing a list of billion-dollar deals that haven't gone through yet. But even though we're seeing a rise in the share sales, the impression I'm getting from our sources is somewhat more measured compared to the bull market back then.

16:50And this has also partly been driven by China's own approvals in these companies. Again, none of these listings could have happened without China's own approval. So in a way, they're also filtering it from their end, letting which companies they'd like to go through. Where does that leave Hong Kong? Where does it leave Hong Kong? If anything, this rebound in share sales cements Hong Kong's role as China's global carbon markets. Hong Kong used to be a bridge into China for these multinational companies to tap into the Chinese market. And now Chinese firms are setting their sights on the markets globally.

17:29And so they need Hong Kong as that bridge to get forward investor money to raise funds. And that's increasingly how Beijing sees it as well.

18:02If you liked the episode, make sure to subscribe and review The Big Tick Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening. See you next time.

18:23When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience. Learn more at thehartford.com slash risk mitigation.

18:58Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts.

19:30Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. This episode is supported by FX's The Shards, a seductive drama from executive producer Ryan Murphy. Set in 1980s Los Angeles, the series follows a group of glamorous, deeply entangled high school seniors drawn into a life of wealth, beauty, parties, and excess. At its center is Brett, whose reality begins to unravel when the arrival of a new student coincides with a series of mysterious murders. FX's The Shards, now streaming on Hulu.