Shareholders cash in on Hong Kong stock market rally as investors snap up jumbo block-trade shares sales

Georgina Lee
·4-min read

A slew of listed companies’ shareholders have rushed to raise funds via secondary offerings, as the flush of liquidity that has driven the Hang Seng Index 2,000 points higher this year has encouraged them to sell down their stakes and cash in through block trades.

Hong Kong’s equity capital market had a strong start to the year, including five deals on January 4 alone. One of those was a US$1.3 billion block trade of Wuxi Biologics stock, according to data from Refinitiv, as one of its major shareholders sold down its stake when the shares hit a record high of HK$103.2.

Such a strong start to the year has set a bullish tone for the rest of 2021, bankers said. For the two weeks ending January 8, some 13 companies completed share offerings – both the issuance of new shares and sales of old shares – valued at US$2.2 billion, up more than five times compared to the same period a year ago, data from Refinitiv shows. Of these, block trades accounted for over 80 per cent of the total.

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Bankers expect the strong pipeline for initial public offerings (IPOs) this year will lead to more capital flowing into Hong Kong. This, in turn, should encourage listed companies to launch stock offerings especially if their shares soar in value on the back of the money flooding in.

Wuxi Biologics’ shareholders sold down stakes via a block trade, valued at US$1.5 billion. Photo: Wuxi Biologics
Wuxi Biologics’ shareholders sold down stakes via a block trade, valued at US$1.5 billion. Photo: Wuxi Biologics

“There is ample liquidity flowing into Asia, and Hong Kong in particular. I don’t see a let-off in momentum this year at least for the first half of 2021,” said Christopher Wong, head of equity capital markets for Asia at BNP Paribas based in Hong Kong.

Net inflows into Hong Kong stocks through Shanghai’s southbound connect scheme were positive for a third straight week up to January 15, totalling over HK$77.7 billion (US$10 billion). Net inflow via the Shenzhen channel of the stock connect spanned an even longer period, of seven consecutive weeks.

In the broader market, daily market turnover surged above HK$200 billion during the first week of the year, dwarfing the highest daily average turnover recorded last year, at HK$165.1 billion in June.

To be sure, despite gaining over 2,000 points since December 22, the Hang Seng Index is still about 14 per cent below its all-time high of 33,223 points in January, 2018. US benchmarks have hit record highs this year.

Given analysts expect a strong recovery in corporate earnings this year amid a roll-out of Covid-19 vaccines, Hong Kong stocks may move higher.

The pipeline of billion-dollar IPOs could attract further inflows. It includes short-video platforms Kuaishou Technology and Bilibili, which are expected to raise up to US$6 billion and US$3 billion respectively this quarter. Other IPO candidates include WeDoctor, and insurer FWD. These sizeable deals come after some US$50 billion was raised via IPOs last year, the most in a decade.

“In Hong Kong, we believe that capital-market liberalisation will continue to provide investment opportunities for investors and attract further capital inflows,” said Kai Kong Chay, a senior portfolio manager for Greater China equities at Manulife Investment Management. He was referring to the Hong Kong stock exchange’s listing reforms introduced in 2018, which enabled more technology companies to float their shares.

Pre-IPO investors are often sellers of blocks of shares after their six-month lock-up periods expire.

Warburg Pincus sold shares of Jinxin Fertility, a Sichuan-based in vitro fertilisation treatment provider, when the stock hit a record high on January 4, cashing out with US$188.3 million, data from Refinitiv shows. The private equity firm bought its stake in August 2017, data from Jinxin’s prospectus shows.

Pre-IPO investors in companies that listed in June and July are now free to cash out as their lock-up periods have expired. These include shareholders in Hygeia Healthcare, Kangji Medical, Shenzhen Hepalink Pharmaceutical. Elsewhere, investors in China Bohai Bank, Cathay Media and Education Group are also near the expiries of their lock-ups.

“Given the IPO pipeline in Hong Kong is still looking strong this year, and the continuing uncertainty surrounding US-China relations, which will no doubt spur more secondary listings, this will clearly be beneficial for follow-on offerings, including block trades, as markets continue to perform,” said Wong.

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