China/US trade war: impact on TMT IPOs

By Yedda Wang, Asia Editor, TMT Finance

Within the global TMT industry, the impact of the Chinese/ US trade war looks likely to have many wide-reaching consequences. Among TMT dealmakers and ECM advisers, there are two major themes already playing out: more secondary or dual listings of Chinese TMT companies in Hong Kong, and a potentially negative impact on US investment banks doing business in China, according to sources.

Following the lead of US-listed Alibaba Group, which is reportedly working on a second listing in Hong Kong, several US-listed Chinese tech companies are now also looking to follow suit and are approaching investment banks over such plans.

Chinese tech companies are already keen to look at offering additional shares in Hong Kong, with the Hong Kong Stock Exchange changing its “one share, one vote” listing rule last year, which saw a slew of listings on the exchange. The change meant that companies could offer dual-class shares – a share structure which entitles some of the shareholders more voting power than others, mirroring similar rules in the US. The trade war, which could impact access to funding in the US stock market or in some cases, possible delistings, just makes secondary listings in Hong Kong even more compelling, say sources.

According to Forbes, there are around 156 Chinese companies listed in the US with a combined market cap of US$1.2 trillion.

This is obviously good news for investment banks as it means more IPO deals on the horizon, and more mandates to go and win. However, there are major concerns that some banks, particularly those US bulge bracket firms, may miss out on key deals due to the political backdrop.

Take Alibaba Group’s secondary listing as example. The company is reported to have appointed two banks to lead its potential mega US$20bn dual listing in Hong Kong – Credit Suisse and CICC. It is not a surprise that CICC was picked to co-lead the proposed transaction, given Alibaba is a Chinese company and a Chinese investment bank is normally needed to manage mainland Chinese investors for the secondary listing. However, it is interesting to note that some of Alibaba’s key US relationship banks have not yet been appointed, when compared with the lineup on the company’s 2014 IPO in the US.

Alibaba Group made its debut on the public capital market in 2014 and raised US$25bn from the IPO, making it the largest public offering in the history. The IPO were then led by six banks: Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and Citigroup, which earned underwriting commissions of totally US$300.4m. So far it looks as though none of the US investment banks which led Alibaba’s US IPO have been appointed to lead the US$20bn Hong Kong dual listing, which would raise a few eyebrows.

According to sources, one of the key relationship banks, Goldman Sachs, was said to have been working on some preparation works for the dual listing since last December, however, according to sources, Goldman did not end up securing a spot as a lead bank on the IPO, after changes in Q1 this year.

Multiple sources suggested that Alibaba has become more sensitive about using US investment banks. This is thought to be linked to the wider issues around trade and a gesture to the Chinese government and people, rather than any concerns about security, or professionalism of the US banks.

More widely, it is still too early to tell if US banks will suffer as a result of the trade war, but according to several key US banking sources, confidence is still high that this is not a broad or long-term issue.

TMT Finance Deal Data

Europe's Top 20 TMT Dealmakers 2019

USA's Top 30 Comms M&A Dealmakers

Asia's Top 50 TMT Dealmakers