Global markets create sectoral hubs

Specialised pools of capital seem drawn to particular locations for diverse reasons; firms are recognising this.

Rusal, the world’s largest aluminum producer, chose Hong Kong to list its shares in a $2.2-billion initial public offer last year. Canada-based coal miner SouthGobi also came to Hong Kong. In March, Hutchison Port Holdings raised $6.1 billion on the Singapore Stock Exchange (SGX), joining other Chinese shipping majors such as New Century Ship Building and Yangzijiang Shipbuilding.

Increasingly, companies raising capital through equity issuances are choosing specialised exchanges over their home markets to sell shares. Companies are looking at niche pools of capital available in such specialised markets, as money raising becomes difficult across the globe.

SGX has positioned itself as the home of shipping IPOs, while natural resources companies have preferred the Hong Kong Stock Exchange, gateway to the world's largest consumer of commodities, China. Germany’s Deutsche Börse is seen as a good market for renewable energy, while the US has been traditionally favoured by internet-based companies. Toronto and London are seen to provide favourable conditions for oil companies.

S Subramanian, head of investment banking at Enam Securities, says about 30 internet-based companies have received various stages of private equity funding to the tune of $450 million. “For such a specialised set of companies, global markets can be an interesting opportunity,” he adds.

A number of Indian companies in oil and gas and e-commerce sectors, which have received growth funding from private equity investors, are exploring such niche overseas options, said bankers.

Chetan Savla, head of the corporate advisory group at Kotak Mahindra Capital, said: “Specialised pools of capital are looking for deployment in specified investments. In these times where volatile secondary markets have led to unwillingness among investors to commit capital, companies could look at the opportunity to search for such pools of capital.”

Government policies in these specific markets, awareness about a particular sector and valuation premia enjoyed are seen as key factors driving this sectoral specialisation across the globe, say experts

Subramanian of Enam said, “One important factor issuers consider while choosing a listing location is the valuation premium. People see if there is a sector commanding premium valuation in a particular location. This could be because of better understanding of the sector or availability of specialist investors.”

Even exchanges are keen on positioning themselves as niche markets and facilitate specific sectors. An official at the listing department at Deutsche Börse said, “Renewable energy and clean tech companies are popular in Germany because government policies are favourable. This has also created a better understanding among the investing community. Apart from these, automobiles and high-tech engineering, sectors which Germans are known for traditionally, are also favourites.”

The Hong Kong Stock Exchange issued specific listing rules for mineral companies in June 2010. These provide clear guidelines for mineral companies and listed companies participating in the natural resources industry on information that must be provided to investors and shareholders, the exchange said in a statement.

Indian companies looking to take advantage of these niche capital pools will have to take the depository receipts route. Recent government rules that the companies have to be listed locally before raising money through global depository receipts may come as a spoiler, says Subramanian of Enam. However, companies already listed can go for secondary listing through the ADR/GDR route in these specialised markets.

The Deutsche Börse official says listing decisions are case-by-case. “For example, in the fashion industry, while Prada chose to list in Hong Kong, its competitors chose their home market in Italy.”

Experts also say there is a tendency for issuers to move close to their consumer markets while choosing listing location. India has also opened its market for foreign companies by drawing a framework for Indian Depository receipts or IDRs. Only one company, Standard Chartered Plc, has listed its IDRs so far.