Hong Kong IPOs Are Paying Banks Way More Than Before

(Bloomberg) -- Hong Kong initial public offerings are becoming more lucrative for bankers.

The average percentage fee paid for advising on listings in the financial hub stands at 6.9% of the deal proceeds this year, almost three times what banks would have received a decade ago, data compiled by Bloomberg show. The average has been on the rise since hitting a low of 1.7% in 2011, the data show.

Advising on IPOs in Hong Kong is a big business for banks, with the city ranking as the world’s busiest listing venue several times in the last few years. But even as the average fee has been rising, growing competition from Chinese players, which have expanded their investment banking capabilities and increased their market share, has squeezed the overall fee pool. Hong Kong IPOs pay less on average than those in New York, where fewer banks compete for advisory roles.

Chinese issuers, which make up the vast majority of companies listing in Hong Kong, tend to pay less than the average fee. This year, the mean fee for IPOs by Chinese companies stands at 4.8% -- though that also is the highest in a decade. Chinese issuers have paid less than the Hong Kong average for the past six years, the data show.

Typically, the larger the listing, the lower the percentage fee. This year’s five largest initial share sales in Hong Kong have paid banks an average 1.05%. The fact that three of the five were second listings is also a contributing factor, as such deals, just like follow-on share sales, pay lower fees given that investors are already familiar with the listed entity. JD.com Inc., the year’s biggest listing in Hong Kong, paid banks just 0.25% of the deal value. As banks gear up for a slew of second listings from U.S.-listed Chinese firms, they may need to get used to smaller winnings.

UPCOMING LISTINGS:

• XPeng Motors
  • New York Stock Exchange
  • Size up to $1.1b
  • Pricing Aug. 26, listing Aug. 27
  • Credit Suisse, JPMorgan, Bank of America
• Nongfu Spring
  • Hong Kong stock exchange
  • Size up to $1.1b
  • Pricing Aug. Aug. 28, listing Sept. 8
  • CICC, Morgan Stanley
• Kakao Games Corp.
  • South Korea exchange
  • Size up to $321m
  • Gauging investor demand Aug. 26-27, pricing Aug. 31
  • Korea Investment, Samsung Securities
• Gland Pharma Ltd.
  • India stock exchanges
  • Filed July 10
  • Citi, Haitong, Nomura, Kotak

• Kalyan Jewellers India Ltd.

  • Indian stock exchanges
  • Size as much as $235m
  • Axis Capital, Citi, ICICI Securities, SBI Capital Markets and BOB Capital Markets

More ECM transactions we are following:

• Chinese electric-car startup Xpeng Inc. is set to raise $1.28 billion after guiding its U.S. initial public offering above a marketed range, people familiar with the matter said, showing strong investor interest in the sector is not abating
• Brii Biosciences, which focuses on treatments for diseases such as Covid-19 and HIV, is considering an initial public offering in Hong Kong as soon as the first quarter of next year, according to people familiar with the matter

See also:

• Asia ECM Weekly Agenda
• IPO data
• U.S. ECM Watch
• EU ECM Watch
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