Hong Kong: Changing Tides In Asia—Accessing The Financial Markets

Last Updated: 7 October 2011
Article by Conor T. Warde and Kristi Lynn Swartz

From a tiny fishing village and colonial trading port of tea, Hong Kong has transformed itself into, and is well established as, a global maritime and financial hub. Hundreds of thousands of vessels make port calls in Hong Kong each year, making it one of the world's largest and busiest ports. Besides being a major shipping hub, Hong Kong also is a vital capital market for companies seeking to raise funds. In the first half of 2011 alone, Hong Kong initial public offerings ("IPOs") accounted for US$23.6 billion in fund raising.

Among the available financing options, some of the largest shipping companies have undertaken or considered public listings on exchanges in Hong Kong, Singapore, New York, and elsewhere for their fleet expansions. A public listing is and will remain an attractive option to some, but private equity, especially for those with investments and operations in Asia, is proving to be an increasingly desirable alternative for shipping companies looking to grow their businesses. With the slowdown in the IPO market and recent market instability, this trend is likely to continue.

"Going Public"

Many factors have contributed to the rise of public offerings in the last number of years, but at the most basic level a company decides to "go public" because of (1) the ability to raise additional funds, (2) the impact it has on the company's internal operations and energy, and (3) increased visibility in the industry.

When choosing to list on an exchange, a company must carefully consider the market in which it wishes to be listed. New York has for a number of years been the marketplace of choice for shipping companies, but an increasing number of bankers and financial advisors have suggested that Hong Kong offers the most suitable market for shipping companies because the city is in the views of many the "nerve center" of the shipping industry, given its central location in Asia, and because of its strong financial, accounting, and legal industries that support the shipping industry.

Hong Kong is now the seventh largest exchange in the world by market capitalization and continues to be a key market for Chinese companies. In the first half of 2011, there were 48 IPOs by Chinese companies alone in Hong Kong.

In addition to the free trade agreement between Hong Kong and mainland China, Chinese Vice Premier Li Keqiang recently expressed the mutual importance of Hong Kong and mainland China to each other by stating that, among other initiatives, the Chinese government will encourage mainland-based enterprises to list in Hong Kong and will enable Chinese investors to invest in an exchange traded fund constituted by Hong Kong listed stocks. Companies seeking exposure to the rapidly growing Chinese market are well positioned to take advantage of such opportunities by going public in Hong Kong.

Nevertheless, the burdens and challenges of "going public" are not insignificant cant. The expenses of an IPO can be substantial. Significant reorganizations of a company's corporate and capital structures may be required before the offering. The listing requirements can also be quite stringent and the post offering duties of a public company can be demanding for even the most well managed companies.

Private Equity on the Map

Despite the advantages of going public, IPOs by shipping companies have been anemic for the past 18 months worldwide. In the absence of IPOs, the shipping industry must look to alternative sources or return to traditional financing options, such as the banks. However, the global credit crunch has limited the ability and desire of banks to lend as freely as in the past to shipping companies. Private equity may help fi ll the funding shortfall in the shipping industry, which some analysts have estimated to be as high as $30 billion over the next three years.

One key benefit of private equity is a more streamlined management structure with a better flow of information. A private equity-backed company often finds it easier to align the interests of managers and owners because there are fewer investors overall and the private equity investors usually have a better intimate understanding of the operations of the company. By contrast, a public company often invests significant amounts of time in communicating to a diverse group of shareholders and addressing potential conflicts between these shareholders and the management, as well as ensuring compliance with the various regulatory requirements imposed upon the company. Private equity funded companies are also not subject to the majority of the reporting or corporate governance arrangements of listed companies. The executives can more readily focus on the strategy of the business rather than on reporting requirements. An additional benefit is that when the private equity firm decides either to sell the company or bring it public in the future, investors are more likely to have confidence in the internal financials of the company given that it has likely been subject already to thorough due diligence by the private equity firm.

One of the most commonly noted downsides of private equity funding is that private equity investors generally have short-term investment horizons. The average length of time that private equity investors own companies usually ranges from three to five years. Such an investment approach may lead to short term rather than long term planning and decision making. Management of these companies is often asked to focus on cutting programs and staffing levels that are deemed unnecessary or inefficient.

With all of this in mind, however, there is a growing trend of shipping companies seeking private equity funding and private equity firms continue to seek opportunities in the shipping industry in Asia and elsewhere. In one of the more recent and well publicized examples of this, The Carlyle Group, one of the world's largest private equity firms, formed a joint venture in March 2011 with Tiger Group Investments and others, including Seaspan Corporation, that will focus on bringing together Chinese shipbuilders, lenders, and state-owned companies to support China's desire to increase the amount of cargo it controls. This joint venture deal, on which Blank Rome served as maritime counsel to The Carlyle Group, will deploy $900 million in equity funding over the next five years to acquire $5 billion of containers, tanker vessels, and other shipping assets.

Shipping assets will continue to be attractive to private equity firms as the maritime industry expands to meet the demands, especially in Asia, for natural resources and goods. At the same time, shipping companies are attracted to private equity as the recent market turmoil casts doubt on the availability of public listings as an option for raising significant funds. The valuations offered by private equity firms are at least as strong, if not better than, what is available through a public offering at this time. Private equity funds may, for now, serve as a life preserver for the shipping industry and may also be a driving force in Hong Kong and elsewhere in Asia, at least for the immediate future.

To view this article in full please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions