Hong Kong’s Moribund Market Loses Another Big Deal From Alibaba

(Bloomberg) — One of Hong Kong’s last big hopes for a resurgence of its IPO market has been dashed by Alibaba Group Holding Ltd.’s move to scrap a listing of its logistics unit, piling pressure on the financial hub’s leaders to find new paths to a revival.

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The Chinese e-commerce giant on Tuesday called off a $1 billion-plus sale of new shares in Cainiao Smart Logistics Network Ltd., citing poor market conditions. Samsonite International SA and L’Occitane International SA have also been weighing an exit from the city’s bourse due to low valuations.

Hong Kong needs “fundamental changes” to how it’s perceived, said Andy Wong, IPO leader at advisory firm SW Hong Kong. “The drain of international capital in Hong Kong also significantly increases the difficulties of an IPO success.”

Alibaba’s latest decision, adding to an earlier reported call to delay an IPO for its grocery chain unit, is another reminder of the challenges facing the Asian financial center. Fundraising via initial public share sales in Hong Kong has dropped for four consecutive years, as its equity markets suffer from Beijing’s regulatory crackdown on private enterprises, a slowing Chinese economy and tensions with the US.

IPO proceeds are down 39% so far this quarter to about $508 million, poised for the worst three-month period since the global financial crisis, Bloomberg-compiled data show. The city hasn’t hosted a new share offering bigger than $1 billion since CALB Group Co.’s debut in October 2022, pushing its total market capitalization down by about 38% from a peak in 2021.

“Markets are pretty depressed, there’s also a lack of liquidity,” Alibaba’s Chairman Joseph Tsai told analysts during a conference call on Tuesday. “For us, it doesn’t make sense to continue to grind into these capital markets deals if it doesn’t unlock value for shareholders.”

The benchmark Hang Seng Index is down almost 50% from its 2021 peak, even after a recent rebound. As deals plunge and Chinese stocks lose their place in global portfolios, bankers are getting laid off. One who was made redundant by Goldman Sachs Group Inc. said the drop in IPOs flowing from China means banks will have to consider more restructuring.

Read more: Hong Kong’s Formerly High-Flying Bankers Become Lost Generation

Local authorities have stepped up efforts to restore market confidence in recent years, including slashing trading costs and wooing investors from the Middle East via official visits. Hong Kong’s Chief Executive John Lee in 2022 set a target to persuade more than 200 family offices with HK$240 million ($31 million) in assets to establish or expand their operations by the end of 2025.

Alibaba’s decision to cancel Cainiao’s IPO “risks other Chinese companies scrapping listing plans in Hong Kong,” said Sharnie Wong, a Bloomberg Intelligence analyst. The city’s bourse is facing earnings pressure and its new Chief Executive Officer Bonnie Chan is expected to outline a new strategy in the coming months, Wong said.

Hong Kong’s leaders face an uphill battle to revive investor confidence as the Chinese economy continues to struggle with a housing crisis and waning domestic consumption. The passing of a new security law earlier this month, which prompted fresh warnings from the US, European Union and UK, rekindled concerns about the appeal of the city as a global finance center.

The Hong Kong stock exchange has seen only 10 companies listed this year, with the average IPO size at $51 million. With Cainiao out of the picture, authorities are pining hopes on other mid-to-large size deals in the pipeline, including those from smartphone maker DreamSmart Group and Horizon Robotics, a Chinese provider of autonomous driving computing solutions.

Fast-fashion company Shein may be another candidate, as the company mulls switching its IPO away from New York due to US regulatory hurdles, with some touting Hong Kong as a better listing venue.

The current key drags for Hong Kong’s markets are “the lack of changes in China’s economy and the global risk appetite for China-related assets,” said Gary Ng, a senior economist at Natixis SA. “If a firm is not desperate, it will probably wait or find other financing means rather than equity offerings.”

–With assistance from Sarah Zheng and Pei Li.

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