Hong Kong stocks are experiencing a wave of privatization and delisting. A large number of private equity firms are eagerly participating in the competition
Hong Kong stocks are experiencing a wave of privatization and delisting. So far this year, 10 companies have delisted, with 5 of them being privatized. Many listed companies on the Hong Kong Stock Exchange have been involved in privatization, including 5 delistings like Pine Care Group and Langham Hospitality Investments receiving privatization proposals. L'Occitane and Samsonite may also be privatized and delisted. Due to limited liquidity in the Hong Kong stock market and low trading volumes of many listed companies, they are choosing to privatize and delist. With funds in the Hong Kong stock market concentrated in a few high-quality stocks, many companies have lost their financing function, and the benefits of maintaining a listing status on the Hong Kong Stock Exchange are not significant. The average daily trading volume in the Hong Kong stock market has decreased by 16%
According to the latest information from the Zhitong Finance and Economics APP, as reported by the media, the Hong Kong IPO market has slowed down. However, with the increasing number of acquisitions of listed companies, acquisitions of listed companies may become a new way out for investment banks. Some investment bankers have pointed out that they have received many inquiries regarding privatization. Hong Kong stocks are ushering in a wave of privatization and delisting. According to incomplete statistics, a total of 10 companies have delisted from the Hong Kong stock market so far this year, with 5 of them being privatized delistings. Many other companies have also announced their intention to privatize and delist.
Specifically, in the recent period, there have been many cases of privatization of listed companies on the Hong Kong Stock Exchange: in the first quarter of 2024, five companies including Pine Age Care Group have delisted, and Langham Hospitality Investments (01270) has received a privatization proposal from its parent company, Eagle Hospitality Group (00041). China National Pharmaceutical Group plans to privatize China Traditional Chinese Medicine (00570), and so on.
One of the most recent and noteworthy cases includes L'Occitane International S.A. (00973), with reports indicating that Blackstone is about to reach an agreement on privatizing L'Occitane. At the same time, Samsonite International S.A. (01910) is also considering privatization, with reports suggesting that private equity firms such as Carlyle Group and KKR have shown preliminary interest in acquisition. However, Samsonite is also considering a dual listing in the United States.
It is reported that the limited liquidity of Hong Kong stocks has long been criticized by the market, leading to many listed companies having difficulty reflecting their fundamentals in market valuations. With low stock trading volumes, they also have to bear high costs to maintain their listing status. Data from the Hong Kong Stock Exchange shows that in 2023, the average daily turnover of the Hong Kong securities market was HKD 105 billion, a 16% decrease compared to the previous year.
According to incomplete statistics, since 2023, at least 18 Hong Kong-listed companies have decided to delist, including IMAX China (01970), Dali Foods Group, Yashili, among others, which is significantly higher than in 2021 and 2022.
A sponsor from the investment banking department of a Chinese brokerage firm stated that approximately 80% of the funds in the Hong Kong stock market are concentrated in the top 20% of high-quality stocks. This means that a large portion of very good company stocks have very low circulation, and many companies have actually lost their financing function. The benefits of maintaining a listing status on the Hong Kong stock market are not significant, which is one of the main reasons why Hong Kong-listed companies choose to privatize and delist.
On the other hand, the valuations of Hong Kong stocks are generally lower than A-shares. Some companies that have privatized and delisted from Hong Kong stocks will seize the opportunity to return to A-shares. The opening of the Sci-Tech Innovation Board (STAR Market) and the full implementation of the registration-based IPO system also provide opportunities for some companies planning to delist to relist.
Xuong Liu, Managing Director of Alvarez & Marsal, mentioned that the stock prices of many companies listed in Hong Kong are lower than those in Europe and the United States. It is expected that more privatization transactions will be seen in 2024 and beyond.
Richard Griffiths, Head of M&A at Faraday Asia, pointed out that acquiring a Hong Kong company and relisting it elsewhere provides an opportunity to achieve higher valuations. He stated that when it comes to international brand companies, there is particularly strong interest in privatization transactions, with many companies and private equity firms seeking opportunities. Although there are still many challenges in the market, financing has become more stable, and there is a clearer path for interest rates that have already peaked, which makes bidders more confident and is crucial for mergers and acquisitions
