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Saturday, 24 August 2019

China Equity House

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Morgan Stanley stood out in 2018 for its ability to deliver equity capital to China’s technology sector, staying ahead of regulatory changes and doing more than its rivals to develop the market.

Tech listings were the overriding theme for the year, and Morgan Stanley dominated the sector, working on 20 tech or biotech IPOs during IFR’s review period.

It was especially impressive in bringing tech companies to Hong Kong, doing more than its fair share to promote the city as a genuine alternative to the US market. Morgan Stanley sponsored Hong Kong’s first two IPOs involving dual-class shares and three of the first four from early-stage biotech companies. It also played a key role in Asia’s biggest ever block trade, proving that Hong Kong can support even the biggest of capital raisings.

Morgan Stanley responded quickly when Hong Kong’s stock exchange unveiled its biggest revamp of listing rules in a decade, allowing dual-class share companies and pre-revenue biotech companies to float in the city.

It was one of the sponsors for the landmark HK$42.6bn (US$5.4bn) Hong Kong IPO of Chinese smartphone maker Xiaomi, the first listing in the city with weighted voting rights, and followed up as a sponsor on the HK$33.1bn Hong Kong IPO of Chinese online services provider Meituan Dianping, the second deal of the kind.

In both cases, the bank convinced investors to look beyond the companies’ steep losses and bet on their future – an unusual concept in Asia, where most IPOs are marketed on a simple price/earnings multiple. Meituan, which runs a range of online businesses from food delivery to ticketing services, posted a huge loss of Rmb19bn (US$2.8bn) in 2017, while Xiaomi had burned through Rmb7bn in the first quarter of 2018, including one-off items.

Morgan Stanley also secured sponsor roles on three listings from pre-revenue biotech companies, throwing its weight behind Hong Kong’s plans to become a fundraising hub for the promising sector. Notably, the bank was one of the sponsors on the successful HK$3.8bn float of anti-cancer drug developer Innovent Biologics, which helped revive investors’ confidence in the sector after a few disappointing listings.

Outside Hong Kong, Morgan Stanley arranged 11 China-to-US IPOs during IFR’s review period, including the floats of electric vehicle maker Nio, used-car marketplace Uxin and video-streaming site Bilibili.

Morgan Stanley also played a leading role in follow-on offerings for Chinese issuers, using its strong distribution capabilities. The bank single-handedly arranged the HK$7.82bn top-up placement of Chinese property developer Sunac China in December 2017, and, as one of the three joint bookrunners, helped South Africa’s Naspers sell a block of shares in Chinese internet giant Tencent Holdings in a record HK$76.95bn overnight trade.

To see the digital version of this review, please click here .

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com .

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