PE capitalises on IPO flurry in HK

The uptick in activity on the HKEx is expected to continue into 2014.

Fu Shou Yuan, a Chinese funeral services provider, listed today on the Hong Kong Stock Exchange, adding to a string of successful private equity-backed IPOs completed at the back-end of 2013.

Shares of Fu Shou Yuan, which counts The Carlyle Group as a $25 million cornerstone investor, priced at HK$3.33 (€0.31; $0.43) this week, according to a HKEx disclosure. The $215 million raised saw the initial public offering price at the top of its range, with media reporting that the retail investor portion was 670 times subscribed.

Fu Shou is just one of a number of IPOs to launch in Hong Kong recently, further demonstrating the interest by private equity to invest in these deals.

Along with Carlyle, China Cinda Asset Management was a cornerstone investor in Fu Shou Yuan, joining Green Heaven Investment and Fallaron Investors.

China Cinda counted Oaktree Capital Management among its investors in its own $2.5 billion Hong Kong listing earlier this month, Private Equity International reported at the time.  

“Hong Kong certainly seems to be a hot market currently. We are seeing a lot of IPO activity and there is a lot of stuff in the pipeline. People have been waiting and preparing for this,” David Brown, head of transaction services for China and Hong Kong at PricewaterhouseCoopers, told PEI.

“We have seen quite a few situations where clients have switched from plans to list in China to instead coming to Hong Kong. We are already seeing and expect to see more private equity-backed IPOs in Hong Kong, but that is obviously coming off a pretty low base.”

Moreover, Hong Kong listings are pricing well, with China China also pricing at the top of its range.

“China Cinda was at the high-end of its range and that was quite a big deal. So there is hope that going into 2014, we will see a more consistent pipeline of successful deals than we have in the last two years,” Paul Boltz, partner at Ropes & Gray, explained.

As well as offering pre-IPO plays for a number of private equity firms, including RRJ Capital’s $350 million investment in China Everbright International before its IPO earlier in December, the activity should signal an improved exit environment for Asian GPs.

“The obvious knock on effect would be that it is going to be a lot easier for private equity firms to start monetising their investments and having some exits here. The window has really been closed for a while now, there haven’t been that many IPOs [in Hong Kong] until recently,” Boltz said.

Private equity firms have struggled to exit their China investments as the capital market shutdown, which has lasted longer than a year, prevented many firms from selling.

However, GPs could be set for a more positive 2014, as China’s IPO markets could re-open as soon as January, according to a statement from the China Securities Regulatory Commission released in November.

“It’s widely predicted that several candidates, say about 50, who have passed the [review committee] will be able to go public in January, 2014,” said Yang Chen, partner at Han Kun Law in Beijing.

Boltz added, “The predicted opening up of the domestic market [in China] and the reinvigoration of the Hong Kong market both provide opportunities for firms to monetise their investments and get out.”