The opportunities and challenges for IPO legal specialists in Hong Kong and the region represent something of a mixed bag, with a possible continued cooling of new listings being partially offset by the new special purpose acquisition companies.
The city has traditionally been a global top performer in terms of initial public offerings – and indeed continues to do so. The first half of last year was very busy, with most law firms hiring heavily for their IPO teams. The represented a great opportunity for IPO lawyers to take a step up in terms of firm and remuneration. This was especially true for lawyers in local firms, who could move to large international firms, including some to top tier US firms.
However, partly due to a clampdown on big tech listings from China, the second two quarters of last year saw a significant drop off in new listings. In fact, overall, there were about one-third fewer IPOs in 2021 compared to the previous year. Further clouding the investment horizon is the fact that three-quarters of the companies that started trading in Hong Kong last year ended it with a lower share price than at issue. This compares to roughly one-third in India and a quarter in South Korea. Poor post-listing performance may well mean even fewer IPOs, and fewer IPOs obviously means less business for related legal counsel.
And the effect is not just limited to Asia. Global law firms that have built practices advising on Chinese listings in the US could suffer along with the investment banks that previously benefited from underwriting these flotations.
All of this may not seem like pretty reading for specialist IPO lawyers and legal teams, but it’s not all gloom and doom. While Chinese companies such as Ant and SenseTime have been forced to pull or postpone listings because of changing regulatory frameworks, there has been a significant rise in biotech firms seeking to raise funds here. This is due to a 2018 decision by the HKEX to relax the listing rules for pre-revenue biotech firms compared to more traditional businesses. At the end of last year, 10 biotech listings had been successfully undertaken in Hong Kong, with 28 more approved and in the pipeline.
While the listing rules for biotech companies may be less stringent, the technical nature of such firms often means they require specialist legal assistance. Lawyers with a science background and/or intellectual property rights experience may well find their talents in demand by the growth in biotech IPOs.
The approval of SPACs in Hong Kong may also lead to increased volumes of work for IPO lawyers. Singapore has already jumped on the SPAC bandwagon, with the first couple of listings coming in January. This came four months after market feedback saw the exchange relaxing some of its proposed listing regulations. But Singapore too has suffered a slump in traditional IPO numbers, with the same potential downside effects for related law firms.
Overall, any attempt at forecasting what the next 18 months hold for IPO specialists is going to be extremely difficult. For the time being, hiring in this area has dropped off considerably from last year, with most teams now remaining stable after the influx of new hires. Yes, SPACS and new-tech start-ups will bring in the need for some professionals, but the main volume of traditional listing work will depend on how markets recover from, or adjust to, the ongoing covid pandemic, and geopolitical issues.
By BEN COOPER, Managing Partner, Ashford Benjamin Ltd.