Working to Lure Resource Firms
Resource companies are flocking to Hong Kong to raise capital. Are they coming to the right place?
The biggest and latest example is Swiss commodities giant Glencore International AG, which last week confirmed it would raise as much as $11 billion in a dual listing of its shares on the London and Hong Kong stock exchanges. Others looking to list in Hong Kong include China's Inner Mongolia Yitai Coal Co., South Africa's LontohCoal Ltd., Kazakhstan copper miner Kazakhmys PLC and Chinese iron-ore miner Newton Resources Ltd.
One large deal Hong Kong would gladly add to its trophy wall is the IPO of the world's largest coking-coal deposit in Mongolia, due in late 2011 or early 2012. The Mongolian government is expected to announce the listing venue for state-owned Erdenes-Tavan Tolgoi Co., which controls a giant coal deposit in the South Gobi desert, in the coming months and Hong Kong Exchanges & Clearing Ltd. is a leading candidate.
HKEx, as it is known, is keen to attract resource companies away from other venues and increase its own earnings from new listings. It is already a powerhouse in initial public offerings, attracting more of them than any other market last year for a second year running.
The drive for resource-related business has become a theme in consolidation of the global exchange industry. Part of the rationale behind Singapore Exchange Ltd.'s 8.4 billion Australian dollar (US$8.88 billion) unsuccessful bid for Australia's ASX Ltd. was to make itself more attractive to mining companies of the kind that dominate Australia's market. Australian regulators dashed Singapore's aspirations when they ruled recently the purchase was against their nation's interest.
London Stock Exchange Group PLC, already the primary listing choice for many resource companies, is looking to convince miners they will benefit from the extra liquidity if it succeeds in taking over Toronto Stock Exchange owner TMX Group Inc., another market popular with the minerals and metals sector.
Resource companies haven't traditionally thronged to HKEx, but the exchange is actively trying to change that. Last June, it changed its listing rules to make it easier for mining companies to raise capital for discoveries they have already made. A total of 82 metal and mining companies are listed in Hong Kong, with a collective market capitalization of US$122 billion, the exchange said.
"This is one of the major focuses for this year," said Eric Landheer, head of issuer marketing for HKEx. He has gone on roadshows promoting Hong Kong in Canada, Australia, Indonesia, Europe, Japan, Mongolia, Russia, Taiwan, Kazakhstan and the U.S.
Weighing in Hong Kong's favor is its appeal for commodities companies as a gateway to China, a dominant global consumer of energy, minerals, metals and foodstuffs.
"We're seeing a lot of portfolio managers coming here to be closer to the demand side of the equation, which is China," Mr. Landheer said, noting for example that China now accounts for 50% of global iron-ore demand.
He points to the success of the October 2010 listing of Mongolian Mining Corp., which produces coal used in steel production, that raised HK$5.8 billion (US$746 million). The stock has risen 35% since then.
Even debt-laden Russian aluminum maker United Co. Rusal PLC, which initially dropped in value after its listing in January 2010, has since risen more than 30% from its IPO price. Mr. Landheer notes that although Rusal shares also trade in Paris, Hong Kong accounts for 91% of volume.
Not all of the Hong Kong exchange's customers are happy. G-Resources Group Ltd., a Hong Kong-listed gold-mining company that owns the Martabe gold and silver mine in Indonesia's Sumatra island, believes it is undervalued.
"We're slaving away as the pioneers," says company Vice Chairman Owen Hegarty. "We're taking the bullets for the rest."
It estimates its cash flow from Martabe will be $300 million a year once production starts, based on current gold prices. That means the company is now trading at roughly three times earnings—about half of what a company in a comparable stage of development would trade in Toronto, London or Australia, where investors are more familiar with how to value mining companies, Mr. Hegarty says.
Bankers note that Hong Kong retail investors generally know little about exploration companies and don't know how to analyze them. Some 35% of Hong Kong's stock market investors are retail investors, compared with only 10% in the U.S. market. In mainland China, the reverse is true: Only 10% are professional institutional investors.
"There are some quirks in listing rules how reserves and resources are characterized, and Hong Kong investors are not as familiar with resource stocks as say investors in Toronto, Johannesburg or London have been," said Andrew Michelmore, chief executive of Minmetals Resources Ltd., the Hong Kong-listed arm of a Chinese state-owned mining and metals company. "But in the long run we have a very robust view of Hong Kong in the global market. It won't happen overnight by waving a magic wand. People will get frustrated, but longer term we can see a very attractive market."
Patrick Loftus-Hills, co-head of UBS's Asia Industrials Group, which includes coverage of natural-resource companies, says once companies start selling what they mine—and the cash starts rolling in—Hong Kong-listed companies actually do better than their peers elsewhere.
"There are many, many companies," he said, "that desire a Hong Kong listing."
Corrections & Amplifications
Owen Hegarty is vice chairman of G-Resources Group Ltd. An earlier version of this article identified him as chief executive. —Prudence Ho contributed to this article.
Write to Shai Oster at shai.oster@wsj.com and Alison Tudor at alison.tudor@wsj.com
The biggest and latest example is Swiss commodities giant Glencore International AG, which last week confirmed it would raise as much as $11 billion in a dual listing of its shares on the London and Hong Kong stock exchanges. Others looking to list in Hong Kong include China's Inner Mongolia Yitai Coal Co., South Africa's LontohCoal Ltd., Kazakhstan copper miner Kazakhmys PLC and Chinese iron-ore miner Newton Resources Ltd.
One large deal Hong Kong would gladly add to its trophy wall is the IPO of the world's largest coking-coal deposit in Mongolia, due in late 2011 or early 2012. The Mongolian government is expected to announce the listing venue for state-owned Erdenes-Tavan Tolgoi Co., which controls a giant coal deposit in the South Gobi desert, in the coming months and Hong Kong Exchanges & Clearing Ltd. is a leading candidate.
HKEx, as it is known, is keen to attract resource companies away from other venues and increase its own earnings from new listings. It is already a powerhouse in initial public offerings, attracting more of them than any other market last year for a second year running.
The drive for resource-related business has become a theme in consolidation of the global exchange industry. Part of the rationale behind Singapore Exchange Ltd.'s 8.4 billion Australian dollar (US$8.88 billion) unsuccessful bid for Australia's ASX Ltd. was to make itself more attractive to mining companies of the kind that dominate Australia's market. Australian regulators dashed Singapore's aspirations when they ruled recently the purchase was against their nation's interest.
London Stock Exchange Group PLC, already the primary listing choice for many resource companies, is looking to convince miners they will benefit from the extra liquidity if it succeeds in taking over Toronto Stock Exchange owner TMX Group Inc., another market popular with the minerals and metals sector.
Resource companies haven't traditionally thronged to HKEx, but the exchange is actively trying to change that. Last June, it changed its listing rules to make it easier for mining companies to raise capital for discoveries they have already made. A total of 82 metal and mining companies are listed in Hong Kong, with a collective market capitalization of US$122 billion, the exchange said.
"This is one of the major focuses for this year," said Eric Landheer, head of issuer marketing for HKEx. He has gone on roadshows promoting Hong Kong in Canada, Australia, Indonesia, Europe, Japan, Mongolia, Russia, Taiwan, Kazakhstan and the U.S.
Weighing in Hong Kong's favor is its appeal for commodities companies as a gateway to China, a dominant global consumer of energy, minerals, metals and foodstuffs.
"We're seeing a lot of portfolio managers coming here to be closer to the demand side of the equation, which is China," Mr. Landheer said, noting for example that China now accounts for 50% of global iron-ore demand.
He points to the success of the October 2010 listing of Mongolian Mining Corp., which produces coal used in steel production, that raised HK$5.8 billion (US$746 million). The stock has risen 35% since then.
Even debt-laden Russian aluminum maker United Co. Rusal PLC, which initially dropped in value after its listing in January 2010, has since risen more than 30% from its IPO price. Mr. Landheer notes that although Rusal shares also trade in Paris, Hong Kong accounts for 91% of volume.
Not all of the Hong Kong exchange's customers are happy. G-Resources Group Ltd., a Hong Kong-listed gold-mining company that owns the Martabe gold and silver mine in Indonesia's Sumatra island, believes it is undervalued.
"We're slaving away as the pioneers," says company Vice Chairman Owen Hegarty. "We're taking the bullets for the rest."
It estimates its cash flow from Martabe will be $300 million a year once production starts, based on current gold prices. That means the company is now trading at roughly three times earnings—about half of what a company in a comparable stage of development would trade in Toronto, London or Australia, where investors are more familiar with how to value mining companies, Mr. Hegarty says.
Bankers note that Hong Kong retail investors generally know little about exploration companies and don't know how to analyze them. Some 35% of Hong Kong's stock market investors are retail investors, compared with only 10% in the U.S. market. In mainland China, the reverse is true: Only 10% are professional institutional investors.
"There are some quirks in listing rules how reserves and resources are characterized, and Hong Kong investors are not as familiar with resource stocks as say investors in Toronto, Johannesburg or London have been," said Andrew Michelmore, chief executive of Minmetals Resources Ltd., the Hong Kong-listed arm of a Chinese state-owned mining and metals company. "But in the long run we have a very robust view of Hong Kong in the global market. It won't happen overnight by waving a magic wand. People will get frustrated, but longer term we can see a very attractive market."
Patrick Loftus-Hills, co-head of UBS's Asia Industrials Group, which includes coverage of natural-resource companies, says once companies start selling what they mine—and the cash starts rolling in—Hong Kong-listed companies actually do better than their peers elsewhere.
"There are many, many companies," he said, "that desire a Hong Kong listing."
Corrections & Amplifications
Owen Hegarty is vice chairman of G-Resources Group Ltd. An earlier version of this article identified him as chief executive. —Prudence Ho contributed to this article.
Write to Shai Oster at shai.oster@wsj.com and Alison Tudor at alison.tudor@wsj.com
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