Hong Kong the top choice for fundraising, experts say

In light of the uncertainty on whether the government will relax cross-strait investment restrictions, Hong Kong capital markets will enjoy an edge in attracting Taiwanese companies looking to make initial public offerings (IPOs) in the next few years, industry veterans said.

"Taiwan's restrictions on investment across the Taiwan Strait are a major reason for Hong Kong's advantages," Terence Hong (康曉龍), managing director of investment banking at Mega Capital (Asia) Co (兆豐資本), said on Friday in a forum on Taiwanese firms' fundraising opportunities in Hong Kong.

Mega Capital is a Hong Kong-based securities house of Mega Financial Holding Co (兆豐金控), Taiwan's third-largest financial group by assets.

The status of being a listed company on the Hong Kong bourse makes it easier and more beneficial for Taiwanese companies operating overseas to form strategic alliances with, acquire or invest in Chinese rivals or China's state enterprises, Hong said.

The executive expected Hong Kong markets to continue to have the upper hand when it comes to fundraising activities for Taiwanese firms in the next two or three years, considering that the relaxation of China-bound investment caps is still so controversial in Taiwan.

Avoiding the cap

China-based and other Taiwanese firms operating overseas have been lining up to raise funds in Hong Kong's capital markets, in order to bypass a restriction capping a firm's investment in China at a maximum of 40 percent of its net worth -- with an even lower investment cap for large companies.

Last year, eight Taiwanese companies went for IPOs valued at HK$7.4 billion (US$952.2 million) in Hong Kong, up from three valued at HK$1.7 billion in 2004. The highest-profile case last year was Foxconn International Holding Ltd (富士康控股), which raised HK$3.71 billion -- equivalent to the sum raised by Taiwanese firms between 2001 and 2004.

Foxconn International is a handset maker and the flagship unit of Taiwan's biggest electronics component maker Hon Hai Precision Industry Co (鴻海精密).

Currently, there are 43 Tai-wanese companies listed in Hong Kong. In the first half of the year, integrated circuit design house O2Micro International Ltd (凹凸科技) and two other overseas Taiwanese firms debuted their shares in Hong Kong, raising HK$600 million funds in total, according to Mega Capital.

The securities house said that four more IPOs worth HK$2 billion, mostly in the high-tech industry, were expected in the current half and eight more worth HK$10 billion were expected next year, which will lift the total number of listed Taiwanese companies to 55, with an estimated total market value of HK$312 billion at that time.

"The selling point of the Hong Kong market is that it serves as a gateway to sharing the fruits of China's rapid growth," Lawrence Fok (霍廣文), executive vice president of Hong Kong Exchanges and Clearing Ltd (香港交易所), said at the forum.

International investors who want to buy into the China story pour their money into Hong Kong markets, which in turn attracts more companies that need cash and want to expand in the China market, Hong added.

Fok has visited Taiwan frequently in recent years, but he declined to comment on his contact with any local companies during this trip.

China is now Taiwan's largest investment destination, seeing an aggregate investment flow of US$50.81 billion from 1991 to last month, according to data from the Investment Commission under the Ministry of Economic Affairs.