Robert here, writing from Miami. Here is a headline from today, July 1, at ALB Legal News: “Firms poised as Hong Kong’s capital markets spring back to life.” The article, by George Beveridge, opens: “After posting the slowest first quarter in almost a decade, Hong Kong’s capital markets are once again in full swing, or at least, the closest we are likely to get to it in the middle of a worldwide economic crisis.”
Those of us keeping a close watch on the HK / China market are not surprised by such enthusiasm, although most of us are cautious enthusiasts.
On a typical day, I talk to at least 10 biglaw associates or partners in Asia and the rest of our Asia team does same. I mention this because we have done an informal survey during the past several weeks, regarding deal flow in HK / China. The majority of the people we know have become substantially busier in the past six weeks and most have been told by biglaw friends / colleagues / acquaintances in the HK / China market that they have also become busier.
We have a long way to go before deal flow in HK / China returns to boom levels of ’06 to mid ’08, but it is clear that there is substantially more work now than a few months ago. Here are a few of our more pressing US associate needs:
*PE / M&A – 3 to 5 years – Shanghai (Mandarin not required)
-new hire likely to come from NYC market
*Cap Markets – 5 to 10 years – Hong Kong (Mandarin required)
-new hire likely to come from HK / China or NYC market
*Finance – 2 to 5 years – Hong Kong (Korean required)
-new hire likely to come from NYC market.
*PE / M&A – 2 to 5 years – Beijing (Mandarin required)
-new hire likely to come from NYC market
*Project Finance – 2 to 5 years – Tokyo (Korean required)
-new hire likely to come from NYC market
The US associate lateral hiring market usually lags behind a rebound by at least two quarters and we don’t know if we are if fact in full rebound. The recent increase in deal flow will need to be sustained for some months before we can say it is the rebound we have been waiting for. Also, as US markets remain slow, some busy Asia offices of US firms will remain cautious in hiring, with some still on hiring freeze. Still, we are seeing an increase in interviewing and hiring in the US associate market in HK / China, albeit an increase from what was near dead levels in first quarter of ’09.
Some evidence of the HK / China market rebounding:
-Manufacturing in China has expanded for 4 months.
-Shanghai Composite Index is above 3000 for first time in a year and has gained 63% in ’09, making it the world’s fourth best performing major benchmark.
– China’s first IPO since September ’08, Guilin Sanjin Pharmaceutical Co., received bids for 584 times the available shares (the China Securities Regulatory Commission halted IPOs in September ’08, due to the Shanghai Composite Index dropping nearly 60% in first three quarters of ’08. Now that that stock prices have been on the rise for some time, IPOs in China are starting to once again getting regulatory approval).
-China’s second IPO since September, Zhejiang Wanma Cable Co., will be subscribed tomorrow and has been priced at 31 times earnings (compared with an average of 25 times historical earnings for A shares in China).
– Over 30 other Chinese companies have recently won approval for an IPO. These include Everbright Securties, a top 10 brokerage; Shenzhen Salubris Pharmaceuticals Co.; and China State Construction Engineering Corp., the country’s biggest home builder.
-The South China Morning Post reported July 1 that Aluminum Corp. of China (Chinalco) plans to raise up to US$1.46 billion through placement of up to 1 billion A-shares.
-The first half ’09 sales for the largest foreign automaker in China, GM, rose 38% to a record 814,442 vehicles sold in China.
– Recent lending boom in China has caused 32.9% increase in urban fixed asset investment in first 5 months of ’09, the fastest growth in this sector in five years.
– Lending in China during June ’09 is approximately 300% increase from June ’08.
– Bank of America Merrill Lynch and JPMorgan raised forecast for China’s economic growth for second quarter to 7.6% (from 7.2%) and 6.9% (from 6%), respectively.
– Recent M&A survey by Pricewaterhouse Coopers and Economist Intelligence Unit:
– 42% of all financial services respondents, globally, plan to make acquisition within year. In Taiwan and China, the survey result is 70% and 68%, respectively.
– Central bank Governor Zhou Xiaochuan stated earlier this week that China’s economy continue improving in third and fourth quarters and reach 8% growth for the year.
– DLA Piper Hong Kong partner Esther Leung: “There are definitely more IPOs to pitch for as the market expects a recovery in the first half of 2010. Now is the right time to start preparing for the IPO. In the mean time, the market is still expected to be volatile, therefore many issuers are trying to capture the window we have now.”
– Mallesons’ partner Deiter Yih: “In the six months before February this year, there was too much of a credit crunch for people to invest, so none of the IPOs were able to launch, except reasonably small offerings. Since then, there’s been more liquidity in the market. Although still low, liquidity has increased slightly and somewhat stabilized so people are beginning to invest.”
– GM China Group President and Managing Director: “China’s vehicle market continued to outpace most expectations for growth. The market benefited from stimulus policies adopted by the Chinese government.”
– Wang Peng, Shanghai-based chief investment officer at First Trust Fund Management Co.: “We expect listed companies to post earnings gains in the third or fourth quarter.”
– Central bank advisor, Fan Gang recently predicted that by beginning of ’10, China’s recovery will be stronger and export growth will return to normal levels.
– Lu Ting, an economist with Bank of America Merrill Lynch in Hong Kong: “China’s recovery is gathering further momentum. It has been recovering faster than the market expected.”
– Ven Tan, managing partner of Morrison Foerster’s Hong Kong offices, re US$1.26bn public offering of China Zhongwang: “The listing is significant not only for its size but its role in raising investor confidence in the IPO market in Hong Kong. This is the second Hong Kong IPO that Morrison Foerster has advised on since the start of the global financial crisis, and both listings have overcome extreme market volatility and uncertainty. While the market still has a long way to recover to its pre-2008 activity, the listing indicates a positive turning point in the market.”
– Man Chiu Lee, Hogan & Hartson partner in Hong Kong, re Duoyuan Global Water listing on Nasdaq recently: “The successful offering by Duoyuan reflects a strong sentiment for continued investor interest in market-leading companies in China.”
– David Eich, Kirkland & Ellis partner in Hong Kong, re recent Bain Capital investment of at least US$418 million in GOME: “This complex cross-border deal required a uniquely integrated, experienced Sino-U.S. M&A team. We’ve taken a long-term view on our investment in China and this is how it is paying off for our clients.”
– David Blumental, partner at Vinson & Elkins, re Sinopec $8bn takeover bid of Addax Petroleum: “It’s a significant and transformational deal for SIPC. Chinese companies are now looing to make larger deals, where in a single transaction they can acquire a lot of assets in different places. The trend is that the overses deals of Chinese oil companies have gone from simple assets purchases to much larger public company takeovers.”
– Paul Strecker, partner at Shearman & Sterling’s Hong Kong offices, re Sichuan Tengzhong Heavy Industrial Machinery’s agreement to buy Hummer brand and its management team from GM, as well as China and Hong Kong companies acquiring US distressed assets in general: “There has been many opportunities and will continue to be opportunities in the US for foreign acquirors that have cash to buy relatively good assets at good valuations. China corporations in general, no matter where they are based, represent a good opportunity for international firms. What’s happening is that many mid-tier companies that have done well domestically in China are now looking to expand abroad. With strong buying power and a vision to go global, mid-tier acquirors represent a source of opportunities for international firms advising on cross-border transactions.”
– Recently, Beijing Automotive Industry Corp has been linked to possibly acquiring GM’s Saab and Ford’s Volvo.
– Sherman Chan, an economist with Moody’s: “Fiscal stimulus projects are gathering steam and everything is going according to plan. The pickup in export orders is the most encouraging sign for an economy that’s been very externally dependent.”
– Jing Ulrich, Hong Kong based chairwoman of China equities at JPMorgan Chase & Co.: “China’s stimulus program is having a demonstrable effect on domestic spending, which has resulted in increased manufacturing activity.”
– Klaus Paur of TNS China, re China companies buying distressed US, European and other international auto companies: “[They] are very much into buying such international brands, as this will give them a shortcut to technology, but also a brand.”
– Mark Parsons, Freshfields Hong Kong partner, re increase in IP legal activity in China: “The amount of money that courts are awarding in China is rapidly increasing and it seems to be approaching sums in the more mature western markets. If you look at China’s shift from a user to an owner of IP, it’s no accident.”
– Connie Carnabuci, Freshfields Hong Kong partner, re increase in IP legal activity in China: “The common theme is that whether you’re looking at the restructuring or the litigation sides, these IP assets have become the business lifeline and so clients are focusing on ways they can protect their value.”
– China’s State Intellectual Property Office has recorded a 19% jump in domestic and foreign patent applications since implementing a national IPR strategy in ’08.
– Li Jun, strategist at Central China Securities Holdings Co. in Shanghai: “The land sale is a clear signal of how strong the property market is now. It also indicates that developers are probably operating well.”
– Matthew Phillips, partner at Pricewaterhouse Coopers: “We are seeing some signs of renewed confidence and I would not be surprised to see the resumption of outbound deals by Chinese institutions within a matter of months.”
– Ye Beicheng of Zhong Lun Law Firm, re bond deals not expected to dramatically slow down, even as IPO market returns: “The number of bond issuances certainly will decrease. However, commercial banks form the majority of bond investors in China and they are prohibited from investing in the stock market. So I think that the impact of a resumption in A-share IPOs will not be so drastic. To my understanding, issuing mid-term notes and commercial paper has become a viable alternative to mid-term and short-term bank borrowing.”
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