The Zhitong Finance App learned that according to media reports, the Hong Kong IPO market is slowing down, but as the number of transactions to acquire listed companies increases, the acquisition of related listed companies may become a new way out for investment banks. According to some investment bankers, they have received quite a few inquiries about privatization. Hong Kong stocks are undergoing a wave of privatization and delisting. According to incomplete statistics, since this year, a total of 10 Hong Kong stock companies have been delisted. Of these, 5 have been privatized and delisted, and a number of companies have issued announcements stating that they intend to privatize and delist.

Specifically, over the past period, there have been many privatization-related situations among companies listed on the Hong Kong Stock Exchange: in the first quarter of 2024, 5 companies including Songling Nursing Group were delisted; Langham Hotel (01270) received a privatization proposal from parent company Yingjun Group (00041); Sinopharm Group plans to privatize Chinese Medicine (00570), etc.

The latest high-profile case also includes L'Occitane (00973). According to the news, Blackstone is about to reach an agreement to privatize L'Occitane; at the same time, Samsonite (01910) also reserves the possibility of privatization. The news indicates that Carlyle Investment Group and KKR are reportedly initially interested in the acquisition performance, but Samsonite is also considering a dual listing in the US.

According to reports, the limited liquidity of Hong Kong stocks has always been criticized by the market. This has also made it difficult for many listed companies to reflect their fundamentals in market valuations. While stock trading volume is low, they also have to pay a high cost to maintain their listing status. According to data from the Hong Kong Stock Exchange, the average daily turnover of the Hong Kong stock market was HK$105 billion in 2023, a decrease of 16% over the previous year.

According to incomplete statistics, since 2023, at least 18 Hong Kong listed companies have decided to delist, including IMAX China (01970), Dali Foods, Yashili, etc., far higher than in 2021 and 2022.

The signatory sponsor of the investment banking department of a Chinese brokerage firm said that about 80% of the capital in the Hong Kong stock market is concentrated on 20% of high-quality stocks, which means that a large number of very good companies have very low share circulation. Many companies have actually lost their financing function, and the benefits of retaining Hong Kong stock listing status are not obvious. This is one of the main reasons why Hong Kong stock companies chose privatization and delisting.

On the other hand, the valuation of Hong Kong stocks is generally not as good as A-shares, and some companies will take the opportunity to return to A-shares after privatization and delisting of Hong Kong stocks. The opening of the Science and Technology Innovation Board and the full implementation of the registration system have also provided an opportunity for some companies to be delisted to re-list.

Xuong Liu Youchang, managing director of consulting firm Alvarez & Marsal, said that the stock prices of many Hong Kong-listed companies are lower than those in Europe and the US, and it is expected that there will be more privatization transactions in 2024 and beyond.

Richard Griffiths, head of mergers and acquisitions of France and Pakistan in Asia, said that buying a Hong Kong company and re-listing it elsewhere is an opportunity to obtain a higher valuation. He said that when it comes to international brand companies, interest in privatization transactions is particularly strong, and many companies and private equity firms are looking for opportunities. Although there are still many challenges to overcome in the market, financing has become more stable, and interest rates that have peaked have a clearer path. These factors make bidders more confident and are critical for mergers and acquisitions.