Goldman Sachs' "Triple Exit" Hong Kong Stock Overall Coordinator, What's the Reason? input:

Since the Hong Kong Stock Exchange required issuers to announce the appointment or dismissal of overall coordinators, transparency has become a priority.

On June 1st, YSB, which submitted its third application to the Hong Kong Stock Exchange, announced the termination of Goldman Sachs as its overall coordinator.

As a result, YSB's overall coordinator is now only one investment bank, CICC Hong Kong.

"The Board of Directors hereby announces that the Company and Goldman Sachs (Asia) LLC agreed to terminate the appointment of Goldman Sachs (Asia) LLC as one of its overall coordinators on June 1, 2023. Therefore, as of the date of this announcement, China International Finance Hong Kong Securities Limited continues to serve as the overall coordinator of the Company," YSB said.

It is worth noting that this is not an isolated case of cooperation between Goldman Sachs and the Hong Kong Stock Exchange IPO project being terminated.

In April and May of this year, Beijing Fourth Paradigm Intelligent Technology Co., Ltd. and Cutia Therapeutics both terminated their cooperation with Goldman Sachs as their overall coordinator.

Fourth Paradigm directly hired CICC Hong Kong as its overall coordinator, while Cutia Therapeutics plans to go public on June 12th through a hearing.

More market insiders believe that this may be related to the decline in European and American investors' participation in Hong Kong IPO projects, which has also led to Goldman Sachs being unable to help issuers "sell at a good price."

An insider close to the Hong Kong Stock Exchange predicted to Xinfeng (ID: TradeWind01) that there may be more Hong Kong Stock Exchange IPO projects in the future that will terminate their cooperation with Goldman Sachs as their overall coordinator.

Currently, Goldman Sachs is still the overall coordinator for many Hong Kong Stock Exchange IPO projects, such as Internet medical technology company Circle Heart Technology and MicroPort CardioFlow.

A Detailed Explanation of Goldman Sachs' "Triple Retreat"

In the Hong Kong Stock Exchange IPO project, issuers usually hire intermediaries such as sponsors and underwriters, which is similar to A shares.

However, in August 2022, the Hong Kong Stock Exchange revised the "Listing Rules." In addition to the aforementioned intermediaries, issuers must also hire overall coordinators, and Hong Kong Stock Exchange main board IPO projects must appoint sponsors and overall coordinators at least two months before submitting their listing applications.

According to the Hong Kong Stock Exchange's definition, overall coordinators mainly handle the later global sales work, and have the right to make allocation recommendations to issuers and exercise discretion over oversubscription.

Some market insiders pointed out that the purpose of the Hong Kong Stock Exchange's rule change was to balance the risks and benefits of sponsors.

"Previously, the average fee for sponsors was only one-seventh of the underwriting quota fee, and the cost of violations was often borne by sponsors. The China Securities Regulatory Commission believed that the fees charged by sponsors were disproportionate to their costs and responsibilities. If sponsors can also serve as global coordinators and underwriters, the total fees they earn can compensate for the additional resources and responsibilities required when serving as sponsors, so overall coordinators were established." Yang Bo, deputy dean of Donggao Technology Investment Research Institute, said in an interview with the media.

After the Hong Kong Stock Exchange's new policy, the disclosure of information on the appointment or dismissal of overall coordinators by issuers has become more transparent.From a global perspective, in order to promote the later global sales work, companies planning to list on the Hong Kong Stock Exchange often hire multiple overall coordinators. For example, in April of this year, Kazakhstan Oil Group, which submitted an application to the Hong Kong Stock Exchange, appointed five investment banks including Yuexiu Securities and CICC Hong Kong as overall coordinators.

However, in the context of many Hong Kong Stock Exchange IPO companies choosing to hire more overall coordinators, some companies have taken a different approach.

Goldman Sachs has become one of the foreign investment banks that have been resigned by companies after the new policy of the Hong Kong Stock Exchange.

It is believed that since this year, three Hong Kong Stock Exchange IPO companies have terminated their cooperation with Goldman Sachs as overall coordinators, according to Wind (ID: TradeWind01).

On April 24th of this year, AI company Fourth Paradigm announced the termination of Goldman Sachs as its overall coordinator and hired CICC Hong Kong instead.

However, Fourth Paradigm did not follow the new regulations to release a resignation announcement, but merged the announcement of the overall coordinator hired by CICC Hong Kong.

In May, Cutia Therapeutics, which focuses on hair loss and lipolysis drug treatment business, announced that Goldman Sachs had resigned as its overall coordinator.

So far, Cutia Therapeutics' overall coordinators include six investment banks, including CICC Hong Kong, Deutsche Bank, CITIC Lyon, Huatai Financial, CMB International and BOC International.

On June 1st, YSB announced that Goldman Sachs had resigned as its overall coordinator. Currently, its only overall coordinator is CICC Hong Kong, a Chinese-funded investment bank.

In fact, the fundamentals of these three companies have not changed, and some companies are also in the market's hot track.

Cutia Therapeutics terminated its contract with Goldman Sachs and then went through a hearing at the Hong Kong Stock Exchange, planning to go public on June 12th.

Currently, Cutia Therapeutics, which focuses on the "hair loss" market, has a total of four commercialized products-under CU-40102, an external finasteride spray, CUP-MNDE2, an external minoxidil spray, and CUP-SFJH3, an external pure natural plant extract essence, all used for treating hair loss, while CU-10201, an external 4% minocycline foam, is mainly used for treating common acne.

Although Fourth Paradigm, which focuses on decision-making artificial intelligence applications, is still in a loss-making stage, its revenue growth rate is quite impressive. Its operating revenue and net profit in 2022 are expected to be RMB 3.088 billion and -1.645 billion, respectively, with a revenue growth rate of up to 52.90%.

YSB is mainly responsible for the sales of pharmaceuticals on Internet platforms, and its revenue has exceeded 10 billion yuan. From 2020 to 2022, its operating revenue was RMB 6.069 billion, RMB 10.096 billion, and RMB 14.278 billion, respectively, and its net profit during the same period was -0.572 billion yuan, -0.494 billion yuan, and -1.489 billion yuan, respectively.

Why did they break up?

Goldman Sachs has resigned as the overall coordinator of three Hong Kong Stock Exchange IPO companies within a month, which has attracted market attention.

Some market participants speculate that this may be related to the poor underwriting effect of new shares.The core job of the overall coordinator in the Hong Kong IPO process is to manage the overall sale of the project, which is similar to the work of underwriters. It is highly likely that the initial investor contacted by the issuer communicated with Goldman Sachs, but the issuer's expected fundraising and the price accepted by the market investors differed greatly, so the two parties ended their cooperation. A banker in Guangdong who is engaged in Hong Kong IPO projects told TradeWind01 that the reason behind the poor sales performance may be that investors outside Asia, such as Europe and the United States, are losing interest in Hong Kong Stock Exchange IPO projects. "Foreign investment banks like Goldman Sachs mainly target European and American investors. Now that the market is not doing well, Goldman Sachs knows that it cannot sell this deal, so it may have proactively withdrawn after weighing the pros and cons." A banker in Beijing explained to TradeWind01. In fact, the international sale of Hong Kong IPOs is not optimistic. Wind data shows that among the 75 companies that successfully landed on the Hong Kong Stock Exchange in 2022, the median multiple of effective subscriptions for international issuances was only 1.40 times, a significant decrease compared to the multiple of 3.89 times in 2021. Against this backdrop, Goldman Sachs, whose main clients are European and American investors, may face more pressure in Hong Kong IPO projects. According to sources close to the Hong Kong IPO project, more issuers may terminate their cooperation with Goldman Sachs as the overall coordinator in the later stage. According to TradeWind01's incomplete statistics, Goldman Sachs is also the overall coordinator for many Hong Kong IPO projects, such as Internet medical company Circle Heart Technology and Minimally Invasive Arrhythmia. In fact, with the change of the structure of Hong Kong stock investors, Goldman Sachs may not be the only foreign investment bank to encounter the situation of resigning as the overall coordinator. "If the structure of investors in the Hong Kong stock market shows a trend of 'inward and outward retreat', then the investment banking market will also undergo similar changes in the future." A banker in Beijing pointed out. It is understood that many foreign investment banks such as Morgan Stanley, KKR, and Citigroup Global are also laying out in Hong Kong IPO projects, and whether they will also face the dilemma of "resignation" remains to be verified over time.