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Is the IPO Market in Hong Kong Starting to Show Signs of Recovery?

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Five years ago, before the global financial crisis shattered investor confidence worldwide, Hong Kong was the spiritual home of the blockbuster initial public offering. Year after year, unprecedented new listings, driven by the emergence of Chinese banks onto the global stage, edged values into the stratosphere.

The Bank of China raised $11.1 billion (USD) in 2006. In the same year, Industrial and Commercial Bank of China (ICBC) blew that out of the Hong Kong harbor with a $19.1 billion dual listing in Shanghai and Hong Kong. Four years later, a Chinese bank sent shockwaves around the world once again, with the $20 billion dual listing of the Agricultural Bank of China, again in Shanghai and Hong Kong.

This new world record listing, a record that still stands, led many to believe that the Hong Kong IPO market was impervious to the global economic slowdown, fueled by a seemingly endless stream of sprawling, cash-rich Chinese banks desperate to establish a presence on the global stage.

A Hollywood-style Walk of Fame for record-breaking IPOs would hardly have seemed out of place.

However, the view from my office window on Hollywood Road, just above the central business district, looks decidedly less blockbuster.

In 2011, the overall value of IPOs in Hong Kong plummeted by 40 percent from the year before. The final figures for 2012 are expected to be even worse.

This downward trend is making many in the financial industry in Hong Kong very nervous indeed. Whispers in the skyscrapers clustered around the harbor focus on two nagging questions: did any in the industry really believe that such a rate of blockbuster IPOs pouring in from China could be maintained? And is the world economy the only reason for the decline, or is Hong Kong losing its seat at the global IPO top table?

The steady opening up of China's previously closeted banking industry over the last decade was undoubtedly unique. Never before had the global financial industry had an opportunity like it. Chinese banks, cash-rich and boasting vast customer bases on the mainland, were prime cattle just waiting to be taken to market.

However, it seems that the gravy train is finally starting to dry up. The Agricultural Bank of China represented the last of the 'big four' Chinese banks to launch an IPO in Hong Kong.

There is no doubt that the IPO market in Hong Kong will eventually pick up. Similarly, Chinese companies looking for expansion abroad through a listing in Hong Kong will once again start to trickle in, but the unique conditions of the last decade -- with a queue of colossal Chinese banks striving to outdo each other in the record listing stakes -- are unlikely to be seen again.

With the recent announcement by state-owned Chinese insurance giant PICC Group of a potential USD 4 billion listing by the end of 2012, the signs are that the Hong Kong new-listing market is starting to return to form. The deal will also soothe the doubts of many industry insiders who fear that the downturn in the Hong Kong IPO market can be attributed to more than just the global financial crisis.

Nevertheless, with Singapore, Shanghai and even Shenzhen all making great strides to establish themselves as IPO centers in their own right, Hong Kong's future position at the top table is far from secure.

What is certain is that the next decade will not be as golden as the last. Far less certain is whether Hong Kong will manage to cling onto its dominance of the Asian and global IPO markets, whatever they look like in the years to come.