Hong Kong heats up

The Hong Kong Stock Exchange could become a more popular exit route for private equity-backed companies.

CVC Capital Partners was surely celebrating the $1.25 billion IPO in May of Samonsite, the luggage maker it helped get back to health post-financial crisis. The London-based private equity firm was reported to be selling down nearly half its stake in the company in the share offering.

The exit represented a number of current trends among global private equity players. It is, for example, the latest in a series of pre-credit crisis deals that at one time seemed unlikely to produce much besides heartache and prolonged discussions with lenders, but have rebounded considerably and now look set to turn a profit for sponsors.

It was also the latest international company to seek a listing in Hong Kong rather than in more developed markets. In fact, the Hong Kong Stock Exchange (HKEx) in the last two years has raised more money than any other stock exchange in the world – $82.8 billion and $109.7 billion in 2009 and 2010 respectively – according to global law firm Orrick, Herrington & Sutcliffe. More specifically, the amount raised in 2010 was almost the amount of New York Stock Exchange and London’s AIM market combined.

This is in part due to the effort the HKEx has made. Until late 2006, the bourse would accept listing applications from only companies incorporated in four jurisdictions – Hong Kong, China, Cayman Islands and Bermuda. In recent years, however, it has been “actively working to build itself into an international capital market for companies all over the world”, says Maurice Hoo, Hong Kong-based partner at Orrick.

Since October 2006, the HKEx has approved 14 other places as acceptable overseas jurisdictions of an issuer’s place of incorporation, including Australia, Brazil, British Virgin Islands, Canada (British Columbia and Ontario), Cyprus, Germany, the Isle of Man, Japan, Jersey, Luxembourg, Singapore, the UK and the US (California). Earlier this year, the bourse started to include Italy and France as such acceptable overseas jurisdictions.

Companies are finding the Hong Kong exchange attractive in part due to Asia’s abundance of liquidity.

“There’s a significant amount of institutional and individual investment capacity in Asia. It’s natural for companies from around the world to want to list here and have access and exposure to all of the significant individual and institutional investors who are here in the market,” says Neil Torpey, a Hong Kong-based partner at law firm Paul Hastings.

In addition, “many well-known global brands have a high level of identification with consumers in the market here. For these companies, they’re selling a significant amount of their products in the region and are also doing a lot of manufacturing and assembly here”, he adds.

On the other hand, for many Chinese companies, which in the past have made floating overseas a top priority, the HKEx has also gained some momentum.

“Up until a few years ago, it was generally the case that you would get a better valuation for your company in the US markets than you would get here, but I think that has been reversed in the past few years. As the market has become more global and since the global financial crisis, Chinese companies are achieving valuation premiums,” says Torpey.