08 October 2019

The Budweiser APAC IPO: Is this the rejuvenation of the Hong Kong IPO market?

Hong Kong, the U.S., and mainland China are the three main drivers of the global IPO market. Only one of them though has seen a sharp decline in 2019. The Hong Kong IPO market has possibly been one of the biggest victims of the Hong Kong protests and perhaps to a lesser extent, the U.S. - China trade war.

Where the Hong Kong Stock Exchange (HKEX) was sitting at the number one spot in the world in terms of IPO proceeds at this point last year, they are now sitting in the fourth position, behind the New York Stock Exchange, the NASDAQ and the Shanghai Stock Exchange.

Ever since Hong Kong's 2018 listing reform, which allowed pre-revenue biotech firms to list and tech companies to list with dual-class shares (different weights of voting rights on shares), the HKEX became one of the top exchanges for companies looking to take their business to the public market, particularly those in mainland China. This led to Hong Kong claiming the top spot in the global IPO market in 2018.

With the disruption being caused by Hong Kong's ongoing pro-democracy protests, large companies have been taking a cautious wait-and-see approach. This is particularly the case when it comes to companies planning mega-listings, such as Alibaba. The hesitation to list on the part of these giants is the primary source of Hong Kong’s drop in IPO value this year – this is evidenced by the fact that the HKEX has seen the number of listings in 2019 remain unchanged from last year, at 88.

The Budweiser listing was scheduled to take place earlier this year, but was called off by Ab Inbev due to "prevailing market conditions". The listing was estimated to raise $9.8 billion and was set to be the largest IPO of the year, surpassing the $8.1 billion that Uber raised on the New York Stock Exchange. Budweiser's brave return to the capital market will see it raise only slightly over half of what it had originally planned for, at $5 billion. If the over-allotment option is exercised, this could climb to $5.75 billion.

In an attempt to make the deal a more attractive prospect for potential investors, Budweiser sold off its Australian unit in the intervening period. The intent behind the sale was to present to investors a company whose entire business was focused on high-growth markets, particularly China, India, and Vietnam.

Mega companies looking to go public will have been watching this listing with a keen eye to gain some kind of signal on investor sentiment. Even after having sold off its slowest growth unit and having attracted the Singapore sovereign wealth fund, GIC, as a cornerstone investor, Budweiser’s IPO will still only raise just over half of what they expected in their abandoned listing earlier this year. This will send a strong signal that investors are still quite hesitant and would prefer to adopt a spectator’s position until the current market conditions have turned more positive.

Although the listing is more than three times larger than the next biggest on the HKEX in 2019, it isn't sending signals which indicate that the Hong Kong market is ready for the mega-listings its looking for. There are no mega-deals immediately pending but the HKEX does have a strong pipeline of smaller sized listings to look forward to. Larger companies such as Alibaba however, will most likely keep their IPO plans on the shelf until investor sentiment is more favorable.