Despite all of the volatility and uncertainty unleashed by COVID-19, equity capital markets across Asia-Pacific are thriving, with many markets reforming their IPO regimes to attract more international listings. HSBC takes a look at some of the main dynamics now shaping the region’s markets and outlines how trustee and agency services can play a part in this context. Date of interview: June 2021
Hong Kong’s equity market roars once again
Although COVID-19 initially caused serious disruption to Hong Kong’s equity markets, they have since recovered. HKEX’s (Hong Kong Exchanges and Clearing) reputation as a leading listing destination was cemented in 2020, with HKD 389.9 billion being raised from 140 IPOs (initial public offerings)1 – a 25 per cent year-on-year increase in terms of fundraising volumes.2 “The homecoming secondary listings in Hong Kong have been a contributor to the increased ECM volumes - as well as other sector-centric factors due to COVID-19. There have now been 17 homecoming secondary listings in Hong Kong, and HSBC’s ECM team has worked on 7 of them,” said Dyutish Chaudhuri, Managing Director at HSBC’s Equity Capital Markets (ECM) business in Hong Kong.
There has also been a significant jump in southbound trading activity taking place on Stock Connect, the linkage connecting the exchanges of Hong Kong, Shanghai and Shenzhen. “We are seeing a large number of onshore Chinese investors leveraging Stock Connect. Already in 2021, total southbound flows are close to 70 per cent of their full 2020 volumes. This has been driven by onshore investors’ increasing need to invest for retirement and rotation from bank deposits to wealth management products, onshore mutual funds receiving strong subscriptions, low exposure to overseas stocks, scarcity value of select Hong Kong stocks and the valuations of Hong Kong securities versus A-shares in some cases,” said Chaudhuri.
HSBC acted as a Joint Bookrunner, Sole Receiving Bank and Nominee for the USD11.2 billion Hong Kong secondary listing of Alibaba Group Holding Limited. Despite the challenging conditions in the Hong Kong market, the final book was multiple times oversubscribed.
This transaction represented the largest IPO in Asia ex-Japan in nearly a decade and is the 2nd largest IPO globally in the past 5 years. It is also the largest ever technology IPO in Hong Kong. Alibaba’s listing marked the return of the first Chinese tech ADR to its home market in Hong Kong under HKEX's new rules which allow for weighted voting rights and a relaxed secondary listing regime published in 2018.
The Alibaba transaction showcases HSBC’s continuous commitment to supporting the Asian technology sector.
Hong Kong’s equity markets have been given a boost following reforms to the listing regime. Ganesh Iyer, Director, Global Head of Escrow Product at HSBC Issuer Services, in Hong Kong, said the IPO regime is being streamlined in what could help encourage overseas companies to list in Hong Kong. HKEX is currently consulting on expanding the secondary listing regime for overseas listed Greater China companies from traditional sectors without weighted voting rights.3 The exchange is also assessing whether to introduce greater flexibility for issuers seeking dual-primary listings while maintaining their existing weighted voting right structures and variable interest entity structures. 4 This initiative comes not long after HKEX engaged with the industry to review its IPO listing and issuance process with the objective of streamlining and modernising the value chain through the introduction of a new digital platform connecting Issuers and market participants.5 HKEX said the new platform could shorten the time gap between IPO pricing and trading from five days to just one - reducing the settlement time-frame by up to 80 per cent.6 “HSBC has been working very closely with HKEX on these reforms, and we believe that they will help make Hong Kong even more attractive as a listing destination,” commented Iyer.
HSBC acted as Joint Bookrunner on the USD1.5 billion top-up placement for China Gas Holdings Limited. The transaction was noteworthy as it was the largest utility and energy sector placement in Hong Kong history.
It was also the largest placement in the utility and energy sector in Asia-ex Japan since 2018.
We are seeing a large number of onshore Chinese investors leveraging Stock Connect. Already in 2021, total southbound flows are close to 70% of their full 2020 volumes. This has been driven by onshore investors’ increasing need to invest for retirement and rotation from bank deposits to wealth management products, onshore mutual funds receiving strong subscriptions, low exposure to overseas stocks, scarcity value of select Hong Kong stocks and the valuations of Hong Kong securities versus A-shares in some cases.
India getting back on its feet
Beyond Hong Kong, India’s equity markets are buoyant despite the country’s challenging situation. “COVID-19 has had a dreadful impact on India, but the general view is that the country is enjoying a strong macro recovery. Recent forecasts suggest India could see its GDP growth reach 9.5 per cent in 2021, albeit a reduction of previous estimates.8 “In comparison with the first lockdown, most companies and supply chains are better prepared this time, which has allowed them to avoid large scale disruption. Earnings have come back strongly as companies used the disruption as an opportunity to fine-tune their operating processes and realign their supply chains among other things,” said Chaudhuri. Again, this has also been facilitated by positive structural reform measures. For instance, the authorities have loosened historic quota restrictions imposed on FDI (foreign direct investment) in sensitive sectors such as defence. These changes are corresponding with increased FDI flows, with USD74.4 billion entering the country in 2019-2020, up from USD62 billion in 2018-2019.7 Access channels for foreign portfolio investors (FPIs) such as asset managers, sovereign wealth funds and supranational bodies have also been simplified, leading to a large increase of flows into the country’s equity market.8
HSBC acted as Joint Lead Manager on Reliance Industry’s USD7 billion rights issue of partly paid equity shares, the largest ever equity offering in India.
The issue saw robust demand across existing and new investors, resulting in it being oversubscribed by x1.59.
HSBC has been working very closely with HKEX on these reforms, and we believe that they will help make Hong Kong even more attractive as a listing destination.
Leveraging Issuer Services: Escrows and SPACs
As investors increasingly pivot capital investments towards the rapidly growing Asian economies, demand for escrow solutions, such as those offered by HSBC, is rising. With growing numbers of overseas funds moving into Hong Kong’s equity market, Issuer Services’ solutions are increasingly being used to pool all of the subscriptions being raised by issuers, said Iyer. As Hong Kong is also digitalising its IPO process, market participants need to work with banks which have a strong technology infrastructure to support them, said Simon Field, Head of Issuer Services, Asia-Pacific at HSBC.
Similarly, Issuer Services’ solutions are being leveraged more widely in Hong Kong due to regulatory requirements stipulating that capital proceeds amassed by issuers from retail investors be held in a trust capacity, namely an IPO Receiving Bank, commented Field. Elsewhere, HSBC’s Issuer Services division is also future-proofing its business model to deal with a potential flurry of SPAC (Special Purpose Acquisition Company) activity in Asia. Field said that SPACs – blank cheque companies which use their IPO proceeds to fund acquisitions of private companies – are an overwhelmingly US phenomenon, but added there was growing appetite in Asia. The Singapore Exchange, for instance, has just launched a public consultation on SPACs. “Under existing rules, proceeds from a SPAC listing need to be held in an escrow or trust account until it makes an acquisition,” said Field. The anticipated rise of SPACs is something local providers need to prepare for.
HSBC’s Issuer Services business already has deep rooted operations in London, Hong Kong and New York and is continuing to expand its geographical footprint. This ability to support clients with complex, cross-border transactions is a unique selling point for the Issuer Services business. As a group, HSBC can also provide an assortment of bespoke services (e.g. finance and advisory, escrow solutions, etc) to corporate clients under a single umbrella, making for a more seamless customer experience. “One of the main advantages of HSBC is that Issuer Services can partner with ECM on primary issues especially in markets like Hong Kong, India, Thailand and Singapore where regulations require subscription proceeds to be routed and held in a trust/escrow capacity. This makes for a more holistic, seamless client experience. In addition to our excellent track record, our strong credit rating and balance sheet are also compelling USPs, ” added Field.
Under existing rules, proceeds from a SPAC listing need to be held in an escrow or trust account until it makes an acquisition.
HSBC was granted three prestigious recognitions for its Corporate Trust offering by The Asset as part of its Triple A Asset Servicing Providers 2021 awards.
For the second consecutive year, HSBC was recognised as Best in Escrow Agency, a category which launched last year following a sharp increase in demand for the product among institutional investors particularly in Asia.
The bank was also named Best in Corporate Trust, Singapore and awarded Best Corporate Trust Mandate, Singapore for its role in supporting Singapore Airlines with agency and trustee services on its USD850 million Convertible Bond offering.
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1 KPMG (December 10, 2020) IPO market: 2020 review and 2021 outlook
2 HKEX (December 17, 2020) HKEX in 2020: Year in Review
3 HKEX (March 31, 2021) Exchange seeks views on reforms to enhance listing regime for overseas issues
4 HKEX (March 31, 2021) Exchange seeks views on reforms to enhance listing regime for overseas issues
5 HKEX (November 16, 2020) HKEX seeks views on new proposal to modernise Hong Kong IPO settlement process
6 HKEX (November 16, 2020) HKEX seeks views on new proposal to modernise Hong Kong IPO settlement process
7 Reuters: IMF raises growth forecasts for rich nations, dims outlook for developing world
8 The Times of India (April 21, 2021) FPIs stock holding value soars by USD105 billion in September-March - Report
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