Haitong International Securities Group Ltd. (00665.HK) expects 2014 to be another big year for the tech sector, if not busier than the previous bumper 12 months.
The flagship offshore arm of China’s No. 2 broker said it aims to ride an underwriting wave from the tech initial public offerings (IPOs) expected to wash over Hong Kong’s primary market in 2014 to advance its shift into investment banking.
Deputy chairman and chief executive Lin Yong told the Hong Kong Economic Journal’s EJ Insight that Haitong is vying for eight tech IPOs that might hit the market as early as April. The long queue highlights optimism for a sector revolutionizing brick-and-mortar businesses.
“Traditionally Hong Kong isn’t the main venue for tech listings. Internet and online game firms usually opt for the NASDAQ,” Lin said, referring to the US stock exchange that houses Chinese tech giants such as Baidu Inc. and Sohu.com Inc. “But next year it’s going to be a bright spot here.”
The deals in Haitong’s pipeline range from US$100 million to US$500 million, Lin said.
Hong Kong’s IPO market has sprung back to life as Beijing’s reform package has bolstered global sentiment toward investment in China. Even though the city has missed out — at least for now — on Alibaba Group’s potential HK$100 billion flotation this year, it is on track to round out 2013 as the world’s second-biggest funding hub after New York, according to Ernst & Young.
Among this year’s listings, online game developers Boyaa Interactive International Ltd. (00434.HK) and Forgame Holdings Ltd. (00484.HK) had the best welcomes. Their offers were swamped by orders from small investors, with retail subscriptions for Boyaa worth 832 times and Forgame 313 times the amount on offer, according to exchange filings.
It reflects rapid and lucrative growth in China’s tech industry. A technology sub-index of Hong Kong stocks has surged 65 percent so far this year, compared with a 2.5 percent gain in the benchmark Hang Seng Index. That growth could continue with high hopes that the Hong Kong bourse will lure Alibaba’s mega-sized IPO back from overseas by making room for negotiation.
Charles Li, chief executive of bourse operator Hong Kong Exchanges and Clearing Ltd. (00388.HK), appears keenly aware of the need to attract high-tech mainland heavyweights.
“Hong Kong lost out in the last technology revolution in the US and many believe we can’t afford to lose out in the next one, especially since so many of the large future new-economy companies are likely to come from China,” Li wrote on his blog on Oct. 24.
No financing plans
But the tech sector is not the only area showing signs of renewed life. Haitong has mounted its own revival by rising to 10th spot in Hong Kong’s IPO underwriting market this year, from 13th spot last year, according to Bloomberg data. It coincides with plans unveiled by the broker in August to beef up investment banking as a commission war among brokers eroded traditional fee-based profit margins.
Lin said the overseas arm of Haitong Securities Co. Ltd. (06837.HK, 600837.HK) has enough cash to cater to its newly initiated capital-intensive model and has no financing plans at present. It will keep its leverage at about three times for a year, up from 2.6 times in June.
As part of the overhaul, the brokerage will start operating in Singapore early next year as a stock exchange member, expanding its footprint beyond Greater China.
“We’ve got all the preparatory work ready. The Singapore operations will be a hub for us to expand across Southeast Asia,” Lin said.
In addition, it will strengthen its asset management by launching a yuan-denominated exchange-traded fund under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme within three months. It will also apply for an additional quota of US$100 million to US$200 million under the broader US dollar-denominated QFII program, which gives access to onshore securities.
All these come despite the Federal Reserve’s decision to scale back its bond buying program in January to US$75 billion a month, a move that could dent the outlook for equities at home and abroad.
“The US economy is strong enough to support the taper. Positive signs should spill over to the stock markets given their close correlation,” Lin said.
– Contact the reporter at [email protected]