An increasing number of companies listed on the Hong Kong Stock Exchange (SEHK) are going private.
In the first quarter of 2024, dealers completed $4 billion in Take Private transactions involving companies on the territory’s exchange. That’s more than $1.2 billion for all of 2023, according to Dealogic.
This trend does not bode well for the Hong Kong Special Administrative Region (SAR). The Hang Seng benchmark market capitalization index fell 14% in 2023.
“On the one hand, lower valuations will encourage current holders and managers to take advantage of bargains,” says Brian Michael, an economist and senior fellow at the University of Hong Kong Faculty of Law. “On the other hand, you can see the socialist government taking more securities from private hands. [especially potentially foreign ones]. Deleveraging probably represents the middle and most likely the base.”
Stricter listing rules have also led to record exemptions. In 2023, SEHK removed 47 companies from its main board of directors; 13 people refused voluntarily. This follows 52 delistings in 2022, of which 37 were delisted.
Companies are expected to exit the city’s ATS stock market – either through voluntary delisting or privatization – as current valuations are considered too low. For example, in mid-March, truck maker CIMC Vehicles offered HK$1.1 billion (approximately US$140 million) to buy out all of its listed shares not held by its major shareholder and delist from the exchange.
For CIMC, low liquidity and cheap valuations made it difficult to effectively conduct fundraising activities on the Hong Kong Stock Exchange, the company said in a filing to HKEX.
Chinese sportswear maker Li Ning plans to take the company private after its share price falls 70% in 2023. Local media also reported that French skin care company L’Occitane was consulting with investors and advisers about going private.
The Hang Seng index traded at an average of about 9.1 times forward earnings, while the CSI 300 index, which tracks large companies on the Shanghai and Shenzhen exchanges, traded at a price-to-earnings ratio of 13.4, according to Bloomberg data. Meanwhile, members of the US S&P 500 index traded at an average multiple of 23.2.