Hong Kong’s stock market experienced a roller coaster ride in the year 2011 triggered by a set of unsettling events that dampened market sentiment: The drying up of corporate liquidity in China’s entrepreneurial hub Wenzhou followed by the bankruptcy filing of MF Global, and the worsening of the euro zone crisis.

“The Hong Kong market experienced its best performance in 10 years during the first half of 2011. But the IPO market took a U-turn in the second half of the year mainly because of the exacerbation of the Greek debt crisis, and the downgrading of the U.S. credit rating,” says Edward Au, national co-leader of the Public Offering Group at Deloitte China, which represented issuers who raised about half of the total funds in 2011.

In the first six months of 2011, Hong Kong saw 38 new listings and raised HK$187.2 billion ($24.15 billion), a stellar record compared to 27 new listings and HK$50.3 billion ($6.49 billion) that was raised in the same period in 2010.

Nonetheless, taking the year 2011 as a whole, Hong Kong recorded 90 new listings, a dip of 12 percent from the previous year. Total fund raised amounted to HK$271.4 billion ($35.02 billion), a drop of 40 percent from 2010.

IPOs take two; M&As to surge

With this bleak prospect, smaller deals will be tabled due to lower valuation and the deal flow will resume once the market stabilises, probably in the second half of 2012, says Au.

Against such a backdrop, reworking clients’ IPO plans has become a common theme for many law firms.  “While many clients have delayed their IPO plans till 2012, some may consider other options such as private equity sponsorships to raise funds,” says Wang Yi, Shanghai-based partner at Jun He Law Offices, whose firm is advising on 30 to 40 IPOs, all of which are in the pipeline.

For those candidates determined to go ahead, Wang says their shareholders may demand them to reduce the size of their financing.

Market caution was apparent since 75 percent of the IPOs that were pushed forward in 2011 were priced below the midpoint of the indicative range. Many of the listings that were relaunched last year were often substantially slashed; the heaviest reduction being from the China Hongqiao Group which was down 63 percent from its original $2.2 billion offering.

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