BY XIE YU, SCMP
Vivien Han’s company went public in New York this summer, grabbing headlines in the Chinese media, and was considered another rising star that had successfully tapped the fast-growing Chinese consumer market.
Han and her colleagues, however, did not consider the initial public offering (IPO) a success.
“We had to cut the fundraising volume two times … market sentiment was not at its best. We suggested to our boss that maybe we should wait for a better window,” said Han. But the company’s founder insisted that they go ahead, regardless of the amount that could be raised.
The company went public on the New York Stock Exchange – and raised less than US$100 million.
“The boss said the most important thing for us was to get out [of China] as soon as possible, as we did not know how bad the economy may get in the coming year,” she added.
Han’s company is not alone.
Chinese firms have been flocking to overseas capital markets in 2018, regardless of discounts in valuations and fundraising sizes. Worried about a slowing economy, growing pressures from the US-China trade war and tighter policies undertaken by Beijing, from deleveraging to capital controls, many entrepreneurs are in a race against the clock to get their companies listed overseas, thus diversifying their assets and risks.
“Some companies have pushed forward their IPO plans, despite investor caution and lower valuations. This is a reasoned bet by management that it’s better to take the current offer rather than accept the risk of China’s continued slowdown in 2019,” said Brock Silvers, the managing director of Shanghai-based investment advisory Kaiyuan Capital.
Slashed Fundraising Targets
Quite a few companies slashed their fundraising targets as they listed in Hong Kong this year.
Babytree, backed by Alibaba Group Holding shrank its listing size by 70 per cent in late November. This month, leisure resorts operator Club Med’s owner, Fosun Tourism Group, reduced its flotation size by half.
Mogu, a Tencent-backed Chinese start-up that sells fashion and cosmetics online, cut its IPO size by more than half to US$87.4 million, with the company accepting a one-third discount in valuation offered by US investors, in late November.
According to a recent survey by Deloitte, 82 per cent of chief financial officers or financial directors at companies in mainland China and Hong Kong were less than optimistic about economic prospects than they were six months ago.
The figure, based on a survey of 108 respondents from private companies, state companies and foreign firms operating in China, represents a 52 percentage point increase from a survey in the first quarter.
As far as their businesses were concerned, more than half of the CFOs surveyed (56 per cent) said they had already been hit by trade tariffs, with only 38 per cent expecting to meet revenue targets.
A record-breaking 208 companies went public in Hong Kong during 2018, raising HK$286.6 billion (US$36.6 billion), an increase of 123 per cent from last year.
In comparison, 106 companies went public on the mainland, in Shanghai and Shenzhen. Their proceeds, at 140.2 billion yuan (US$20.3 billion), however, represent a 39 per cent decline.
Meanwhile, the US-China trade war did not stop Chinese firms from going public in the US.
A total of 37 Chinese companies listed in the US in 2018, raising a total of US$9.2 billion, according to law firm Baker McKenzie. That represents an increase from last year’s US$3.6 billion, raised through 20 IPOs.
“Cross-border IPOs surged in 2018, with both the US and Hong Kong markets particularly buoyant. And we forecast that momentum to continue next year … driven by increased overseas listings by Chinese technology firms,” the law firm said in a report released this month.
Baker McKenzie, however, also said the trade war was holding some firms back from listing in the US.
“Unless the US-China trade war is resolved soon, this will have a negative impact on IPO activity,” said David Holland, the law firm’s head of capital markets in Asia-Pacific.