IFLR Asia Capital Markets Forum 2019: key takeaways

Author: Karry Lai | Published: 14 Nov 2019
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HK finance

Overview of key developments in Asia’s capital markets

Growth in debt capital markets creating resourcing challenges for banks to make sure due diligence is done to correct standards within short timeframe

Strong need for capital markets access for corporates in China and Hong Kong SAR continues to be an access point

Activity has been strong for debt capital markets despite trade war, equity capital markets have been more impacted in Hong Kong SAR for the first half of the year but picking up in second half of the year Blockchain technology is gaining ground and is presenting opportunities in security tokens, stable coins and national digital currencies

Green finance growing and there is a trend towards harmonisation.

Equity capital markets

Stock market indices in Asia have been doing well, especially with strong competition between Hong Kong SAR, Singapore, Japan and China

Shanghai Stock Exchange’s Science and Technology Innovation Board will be a long term threat to Hong Kong SAR – from March to September 2019, 28 companies have already been listed with 150 applications in the pipeline

Shanghai-London Stock Connect had a slow start with only one listing so far, more driven by politics than actual investor demand

Shanghai getting more technology hardware company listings, software companies more focused on US exchanges, but Chinese companies that have listed in the US have done poorly

Issuers have not moved away from the US because of the US-China trade war; Shanghai is attracting some Chinese issuers but US still remains an attractive venue.

Views on high yield

2019 was a record breaking year for high yield, with 60% of issuances from China in Asia, especially in low interest environment and with investors hunting for yield

2020 will be a year for refinancing but there are potential risks on the horizon with inverted yield curve in the medium and long term

Interest in green issuances, especially for corporates looking to switch from coal-fired power generation to more renewable energy power generation

Bifurcation between Chinese and non-Chinese issuances with covenant packages light for Chinese issuances but tighter covenant packages for those in Southeast Asia

It’s critical not to repackage deals and use covenant packages with little tailoring.

Focusing on Hong Kong SAR’s biotech listings

Hong Kong SAR still needs to amass more companies so that the biotech sector can grow

What is important is to build the ecosystem for institutional funds to invest in biotech companies and be able to understand the pathways of companies

Biotech companies choosing the IPO path need to show a pipeline and shouldn’t rely on a single product

For biotech companies choosing to go for an IPO, important to consider branding and visibility, especially for biosimilars

Companies are staying private longer in the US biotech sector, resulting in bigger IPOs.

Dealing with distressed debt: opportunities and challenges

Most issuers in Asia report on a semi-annual basis, creating a disclosure issue for noteholders

Lack of quality and frequency of information continues to be a problem for Asia

For Chinese issuances, it’s common for companies to make sure offshore bonds don’t default when there is a problem onshore

Offshore bondholders need to consider the tradeoff between not doing anything in the event of a default in exchange for receiving information from the company

Keepwell agreements are recognised in Hong Kong SAR but yet to see claim brought into bankruptcy court in mainland China.

Overview of China

Wholly foreign-owned entities have been on the rise in mainland China to establish onshore presence to raise money from domestic investors to invest in the domestic market

China’s financial markets are opening up, especially since the 11 measures announced this year, bringing more international experience to Chinese market

Lifting of foreign investment caps for securities and insurance firms to allow for majority ownership is instrumental in China

Blockchain technology continues to be driven by policy agenda in China, with particular interest in the development of a national digital currency

Chinese regulators have been welcoming for foreign investors even against backdrop of trade war as they realise that Chinese markets will improve with more investor choice and the creation of a level playing field.

The evolving role of the legal department

There are increasingly blurred lines between legal and operations, especially in how businesses are dealing with risk

Investors want comfort with due diligence and to see how companies are dealing with legal and compliance risks

Interesting place for legal teams with operating in the grey as regulations getting caught up with market practice

Some frontline teams will only see dollar signs and don’t see how lawyers add value, but majority of senior management will appreciate the risk-averse nature of lawyers

Technology is increasingly being used to bring down cost margins and increase efficiency but need to do this carefully, law firms are using technology more so than in-house teams, particularly due to budget issues.