A tale of two listings

  • Business
  • Saturday, 07 Dec 2019

Aramco’s listing will help Malaysia while Alibaba’s IPO is a show of Hong Kong’s strength as a financial hub

There were two major listings that would likely have different repercussion on the region and Malaysia in the last two weeks.

On Nov 26, China’s e-commerce giant Alibaba Group Holdings Ltd debuted on the Hong Kong Stock Exchange (HKSE) raising US$11bil.

If anybody had thought that Hong Kong was losing its lustre as a financial hub and Singapore would be a better option in future, they’d better think again.

Saudi Aramco was listed on the Saudi stock exchange on Thursday, raising US$25.6bil, which is a new record for funds raised from a listing. As it was taking place, Saudi Arabia is pushing for further cuts in global oil production: a move seen as shoring up oil prices.

This in turn should have a positive impact on oil producing countries such as Malaysia next year.

The amount raised by Saudi Aramco surpassed the previous record set by Alibaba Group’s listing on the New York Stock Exchange that raised US$25bil.

The successful secondary listing of Alibaba on the HKSE goes to show that it’s business as usual in Asia’s financial hub despite the almost daily protests by students and ordinary people venting their displeasure over China’s influence on the island state.

At one stage, there were fears that the listing of Alibaba would be delayed due to the simmering discontent and overriding anti-mainland China sentiments in Hong Kong.

This resulted in the e-commerce giant scaling down on the US$20bil that it hoped to raise from the listing.

Nevertheless, even the US$11.3bil raised from the listing of Alibaba Group should be enough for the HKSE to retain its title for the second year running as the best place for companies to list in the world.

It is higher than the best showing in NYSE this year, which is the US$8bil that Uber raised during its listing earlier this year.

Last year, the HKSE took the crown as the best place to list when it saw through 125 listings raising US$36.5bil.

The HKSE won 17.6% of the global intial public offering (IPO) market, overtaking the NYSE that received 13.9% of the global IPO market.

The NYSE, which is the home for the world’s most expensive technology companies such as Apple, Facebook, Netflix and Amazon raised US$28.9bil from some 60 over listings in 2018.

With Alibaba’s successful listing in Hong Kong, the fear of HKSE losing its status as Asia’s financial hub should recede.

It obliterates the view that the constant upheaval in Hong Kong would lead to companies and investors seeking to relocate to South-East Asia, especially Singapore.

There is a view that Alibaba pursued the listing, despite raising less amount of money than expected, to inject confidence in the HKSE.Amid the trade war with the United States, China needs to maintain Hong Kong’s status as the financial hub for a few reasons.

Hong Kong is the only place where Chinese companies can operate without restrictions as the Hong Kong dollar can be freely converted to the greenback or any other currency.

It is where US dollar financing can be arranged with ease aided by the fact that Hong Kong’s legal framework is recognised by the western world.

Indirectly, Alibaba’s listing is a sheer show of strength by China that – protests or no protests – it will be business as usual in Hong Kong.

Alibaba could have easily delayed the listing as it is not as though the e-commerce company, with more than US$30bil in its kitty, needed the money.

The listing serves to show the other technology companies that Hong Kong is the place to list for those seeking high valuations for their companies.

Capitalism is alien to protest and basic human rights. It only has the scent of the money trail.

In this respect, all trails continue to lead to Hong Kong where billions can be raised. It’s not Singapore or any other countries in the region.

The listing of Saudi Aramco came amid the Organisation of Petroleum Exporting Countries (Opec) wanting to further cut down the production of crude oil nest year to support prices.

Saudi Arabia is proposing that Opec and non-Opec countries such as Russia jointly cut down production by another 500,000 barrels per day to 1.7 million barrels per day.

At the moment, the Opec and non-Opec countries have cut production by 1.2 million barrels per day, a move that has helped bring about higher average crude oil prices this year.

The average this year is about US$64 per barrel and next year the average is expected to be lower on the back of a slower global economy and the US shale industry growing.

A lower average crude oil would not augur well for Saudi Aramco’s listing. Hence, the move by the Saudi-dominated Opec to push for more production cuts should help with Saudi Aramco getting higher valuations.

A higher average crude oil price would probably help achieve the US$2 trillion valuation target that Saudi Arabia has set for Saudi Aramco.

As for Malaysia, the push to cut back on production would benefit the country’s finances.

Budget 2020 was based on brent crude averaging at US$62 per barrel. A higher average would give the government the much-needed cushion to spend its way in the eventuality of the global economic slowdown prolonging further.

Based on the Budget 2020 estimates, the government capital spending is expected to increase by 0.9% next year after two years of contraction in 2018 and 2019.

If brent crude averages higher, it should allow the government to loosen its purse string further.

The views expressed are the writer’s own.

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