China’s overseas listing crackdown threatens Wall Street

In just five months since going public in New York, Didi Chuxing, the Chinese ride-hailing platform, has beaten a humiliating retreat.

Didi, an overseas-listed company that defied warnings from Beijing to delay it over data security concerns, confirmed this month it will removed from the New York Stock Exchange and is about to go public in Hong Kong.

The move has spurred discussion about wrapping up Wall Street’s long and lucrative deal to list fast-growing Chinese companies in New York – and whether its investment banks will America may lose if Hong Kong becomes the only destination for offshore listings of China’s hottest startups.

“Hong Kong is a natural place to list for back companies or companies with primary business in China,” said Jason Elder, a partner at law firm Mayer Brown in Hong Kong. . “When some of these Chinese companies listed in New York, they didn’t have the same options as they do in Hong Kong now – valuation, analyst relevance and liquidity have all improved. .”

Tectonic changes to China’s offshore IPO market could eat into Wall Street banks’ fees and cause disruptions, analysts and bankers say favoring US investment banks, as local investors take advantage of their home turf and European banks exploit the deteriorating US-China relationship.

A senior banker with a Wall Street group said the urgent need to there are more bankers based in Hong Kong, predicts that US lenders will face greater competition for transactions in China from the largest local banks.

According to Dealogic data, Chinese banks have topped the city’s IPO league rankings since 2019.

China International Capital Corp has come out on top for three years in a row excluding so-called go-home deals of New York-listed companies that started selling shares in Hong Kong. CICC has overseen $2.6 billion of primary listings in Hong Kong this year, compared with $2 billion for nearest rival Haitong Securities and $1.6 billion for Goldman Sachs in third.

Wall Street banks have long presented New York to Chinese issuers as a deeper, more liquid market with better analyst coverage. But another key factor is higher fees: the average profit from transactions in Hong Kong, where competition from Chinese lenders pushes margins down, is much lower than in the US.

In the past two years, investment banks have made about $1.1 billion in IPO fees by Chinese companies in each city, even though New York only accounted for $26 billion of shares sold in the companies. offering – less than half of Hong Kong’s $57 billion.

Column chart Fee revenue from IPOs in China ($ million) shows Hong Kong dominates China's overseas IPOs but only attracts even when it comes to fees

IPO analysts and lawyers say that while the relocation will reduce fee revenue, Wall Street lenders are likely to remain heavily involved in Hong Kong, especially for deals. are more dependent on international institutional investors, many of which are based in the US.

Home List has raised over $33 billion in the past two years. According to investment bank China Renaissance, about 70 US-listed Chinese companies without a secondary presence in Hong Kong are eligible to participate, representing about 90% of the group’s collective market value.

“These companies already have strong relationships with Wall Street banks,” said Bruce Pang, research lead at China Renaissance. “But considering the tension between the two countries, the smart move might be to pick at least one European bank when they list in Hong Kong.”

The head of a major European lender described Didi’s delisting as an “incredible reversal of fortunes”, but added that the move away from New York represented “a business opportunity”. significantly local to us, so I think this trend is more good news than bad.”

However, executives at other financial institutions in Asia doubt that any Western bank will be able to capture much of the new business beyond a wave of shortfalls.

The head of equities at an Asian stock exchange said: “Inadequacies can be encountered at Morgan Stanley, Credit Suisse and Goldman. “But it will be Bank of China, CICC and Citic that win more IPOs from China” in Hong Kong.

Meanwhile, overseas banks are still not virtual in China’s domestic IPOs, which are dominated by mainland lenders. Chief among these is Citic, the state-owned financial services group that oversees 17% of a record $65 billion in fundraising this year from new listings in Shanghai and Shenzhen, according to Dealogic data. .

However, China repeatedly overtly for financial liberalization could tempt foreign banks to boost their investment banking ratings in Shanghai in preparation for the day when investors finally have full access to mainland IPOs.

“You’re seeing JPMorgan, Goldman and Morgan Stanley saying that ‘our goal is to go directly to China, interact directly with those exchanges and give customers direct access,’” said the man. Securities head said. “May be like [global] access to China is reconfigured. ”

Unhedged – Markets, Finance and Strong Perspectives

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