Investor confidence in Hong Kong remains strong despite the persisting recession, with the level of equity raising at its highest since peaking in 2000.

After a marked slowdown, the number of new Main Board listings looks set to increase, although the average size of issues is small compared to previous years. Growth Enterprise Market (GEM) Board listings have also risen, with new listings almost overtaking that of the Main Board.

But an expected surge in mainland-incorporated company listings following China’s WTO accession has failed to materialise. The much-anticipated Bank of China Hong Kong IPO will be the first Main Board listing by a Chinese entity in several months, and the first major listing for some time.

London-based Standard Chartered Bank, the first foreign bank to enter the Shanghai market, is expected to list in August or September, after originally planning a Hong Kong IPO for October last year.

Linklaters partner and capital markets specialist Andrew Carmichael says he is surprised at the level of activity in the market.

“It’s amazing in the current economic circumstances that investors are willing to put money into equity when in Europe and America, the equity markets are going down and down,” he told ALB.

“That must be the big question mark: If we do have continued falling stock prices in Europe and America, whether Hong Kong and other Asian investors will really keep putting their money into equity. At the moment, there are a number of companies clearly looking.”

Linklaters recently completed a GEM IPO for start-up biotech company CK Life Sciences Int’l (Holdings) Inc., which raised HK$2.7bn (US$330m) through an offering of 1,307 million new shares. A spin-off of leading HK corporate Cheung Kong, the CK Life Sciences IPO was the second largest by market capitalisation in 18 months.

Says Carmichael: “Although GEM hasn’t been a booming success this year, it’s been the ‘least worst’.”

Carmichael says with the exception of big-ticket listings such as the Bank of China, the average market capitalization of Main Board listed companies since the first half of 2000 has been small.

Teresa Ko, a corporate finance partner with Freshfields Brückhaus Deringer, agrees. She says although the market is turning around, it has not reached previous levels. “Things certainly have picked up from last year,” she says. “There have been a number of much smaller [Main Board] issues which have managed to see the light of day, but I wouldn’t have thought there was anything near the volume of activity that we’ve seen in previous years.”

Ko agrees the Hong Kong market is performing strongly compared to other markets globally. “In China, listings on the domestic securities market have their difficulties, and people are still looking to Hong Kong to raise funds which has to be extremely attractive for the development and future of the Exchange here,” says Ko.

“If the market behaves itself and the US is not going to tumble further, we would expect a flurry of activity in the second half of this year with listings of more medium-sized PRC enterprises. I think we’ll probably be seeing deals which are US$100m plus.”

Ko’s recent work includes advising China Unicom on its US$5.6bn global offering of shares and listing on the Hong Kong and New York stock exchanges.

Carmichael says mainland companies will continue to seek offshore listings, although the number so far has been fewer than anticipated. This is due in part to sectors such as telecoms, aviation and banking – expected to generate IPOs - having been hit by the global downturn and domestic concerns.

“They’re in the pipeline again, but for various reasons – PRC and world financial – the PRC listing pipeline dried up last year,” says Carmichael.

“The big deals that would have been Main Board listings in Hong Kong haven’t happened. The GEM deals have happened.”

Ko says WTO is definitely a driving force for mainland enterprises seeking a listing. “We’ve certainly seen a marked difference in terms of the need for more cash to keep pace with developments in their own domestic market by these PRC companies,” she says. “More obviously, the pace of development of private enterprises has stepped up. Some of the most substantial private enterprises are also looking to international capital – to take them to the next level. And so apart from looking at GEM where they raise HK$50m or so, some of the more ambitious entities are looking at the Main Board with a global offering or even dual HK and US listings.”

· As at June 2002, there were 787 main board listed companies, compared to 745 in June 2001