The spread of the novel coronavirus has paralysed Hong Kong's deal-making hub as travel restrictions curb Chinese companies' ability to meet global investors.
Hong Kong's two-week compulsory quarantine for travellers from mainland China has also made it harder for the city's financial services professionals " from accountants to bankers " to prepare companies for the limelight in public markets. Shoddy work or cutting corners in the mandatory disclosure of financial figures would mean jail time for the sponsors of initial public offerings (IPOs) under Hong Kong's strict listing regime which is designed to protect retail investors from fraud.
Chinese biotech company InnoCare has postponed its roughly US$200 million IPO roadshow due to the virus outbreak, said two people familiar with the matter.
People are adapting, jumping on video conference calls, but invariably it is slowing down the process, said one institutional investor based in Hong Kong, declining to be named for discussing a confidential matter. Road shows by Chinese companies are not even possible, the banker said.
Hong Kong has much at stake. It has been the world's top listing venue for two years running, according to data provider Dealogic. Hong Kong raised over US$40 billion for companies last year to put to work in Asia's relatively fast-growing economies.
Legions of professionals depend on a stream of IPOs for their livelihoods in the financial hub. But Hong Kong's allure has faded over recent months, dimmed first by anti-government protests and now by the spread of the deadly virus. Deal-making was also interrupted by Lunar New Year celebrations that began in late January, adding a two-week break to businesses.
Hong Kong has hosted 25 new listings so far this year. Mainland Chinese companies accounted for 14 of these IPOs, raising US$1 billion, versus 97 deals worth US$32.5 billion during the same time frame last year, according to data provider Dealogic.
Hong Kong Exchanges and Clearing Limited (HKEX), which operates Asia's third-largest stock market, earned HK$143 million in IPO listing fees in 2018, a small fraction of its revenue of HK$15.87 billion.
However, a constant stream of IPOs helps bolster lucrative trading fees. There were over 120 active IPO applications for Hong Kong's main board as of January 31.
The global coronavirus outbreak is going to have a very negative impact on the pipeline of deals, because due diligence of a company's financial figures just cannot be done by video conferencing, said a senior investment banker in Hong Kong, declining to be named.
The increasing isolation of Hong Kong also has ramifications for deal-making across the region as the city is home to a quorum of investors who trade on multiple markets.
Companies across Asia have shelved marketing road shows, during which they tout shares to prospective investors, until authorities can bring the virus under control.
Sanitary products maker Softex Indonesia, backed by private equity firm CVC Capital Partners, has delayed the launch of marketing of its Indonesian IPO, said another person familiar with the matter. While that decision has rather more to do with the company wanting to use its year-end financial statements than the spread of the virus, the person said, waiting until prospective investors in Hong Kong are open to buying into the potentially US$400 million IPO cannot hurt. A CVC spokesperson declined to comment, and Softex declined to comment.
Big investors are even reluctant to meet people coming from the airport, said another senior investment banker.
Among the smaller deals in the market looking to soldier on are: Chinese online insurance provider Huize, which is making its debut on Nasdaq, blank check company Citic Capital Acquisition and local brokerage Fu Shek Financial.
After lodging a listing application, a company has six months to execute its IPO or refile. Any delay means having to resubmit fresh financial statements, which could take longer than usual, given many of the city's professionals are in lockdown and government imposed quarantines for up to 14 days.
The city's association of accountants warned on February 4 that many companies will miss the March 31 deadline to file quarterly earnings reports for the three months ended December, as auditors face travel restrictions in mainland China.
The deadly virus has claimed more than 1,018 lives globally and infected more than 42,638 people in mainland China as of Monday. Hong Kong has recorded at least 42 confirmed cases and one death.
As the cordon sanitaire tightens around Hong Kong and mainland China, companies potentially eyeing a listing in the city later in the year could also be impacted.
Among the larger companies that are said to be mulling a Hong Kong listing are fast-food chain Yum! China and Mongolian coal miner Erdenes Tavan Tolgoi. A handful of US-listed Chinese companies may also be considering copying Alibaba Group Holding's secondary-market listing in Hong Kong, such as online travel giant Ctrip, internet giant Baidu and e-commerce platform JD.com, say financial advisers. Still, IPO advisers agree it is far too early to call if there will be any changes to these companies' plans as yet.
Conversations are ongoing but at a slower pace, said another equities capital markets banker.
Once the coronavirus epidemic abates, capital raising in Hong Kong is likely to bounce back as the rationale for listing for companies with business rooted in China, the world's second-largest economy, remains intact.
In the meantime, bright spots include health care as authorities battle the virus and online gaming, while more people are working from home and children cannot attend school. Mobile internet operating platform Aikuyou Inc has filed a draft prospectus with the Hong Kong exchange.
"While activity has slowed and many meetings have been cancelled, a lot of work is still going on in the background," said Tim Fang, head of global capital markets at Hong Kong-headquartered investment bank, AMTD. "Issuers are keen to come to the market as soon as there is a window."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.