Container ships in Victoria Harbor of Hong Kong / Lee Yiu Tung/Shutterstock

Hong Kong is once again set to be the year's top market worldwide for initial public offerings, despite anti-government protests and trade tensions between the U.S. and China. And in recent months, a surprising group of law firms has started to get in on the action: shipping firms.

Even as several established IPO players have been strategically retreating from the market, Holman Fenwick Willan, Ince, and Hill Dickinson have all launched Hong Kong IPO practices this year as part of a diversification effort to move away from the stagnant shipping market.

HFW launched its IPO practice last month by hiring Locke Lord's entire eight-lawyer Hong Kong team, led by partners Wing Cheung and Matthew Wong. Earlier this year, Ince also recruited a team of more than 10 fee-earners from ONC Lawyers, including IPO partner Eric Lui. And Hill Dickinson hired former Eversheds Sutherland consultant Kurt Lau in September as its first IPO partner.

The hires focus on small and midmarket deals. Last year, both Cheung and Lau worked on bubble tea maker B&S International's $13 million listing; Cheung represented the issuer while Lau advised Lego Corporate Finance Ltd. as the sole sponsor.

But the focus on the midmarket is timely. This year saw the number of mega-sized deals drop, but the flow of midsized deals has been relatively stable, noted Janney Chong, a corporate finance partner at Reynolds Porter Chamberlain.

KPMG said in a report looking at IPOs and other market trends in China and Hong Kong in the third quarter of 2019 that it expects 21 IPOs ranging from $255 million to $1.3 billion this year, which is more than last year. In addition, the pipeline for similar deals is at a historic high, the report said, with more than 200 possible listings as of the third quarter this year.

To be sure, Hong Kong hosted several mega-sized listings this year. Alibaba, the New York-listed Chinese technology giant, raised $11 billion from its secondary listing in Hong Kong last month, the second-largest listing globally this year after Saudi Aramco's all-time record domestic listing. And Budweiser Brewing Co. APAC, the Asia business of Belgian beer giant Anheuser-Busch InBev, raised about $5 billion from its IPO in September.

The deals helped Hong Kong raise more funds from listings this year than anywhere else in the world, with $37.8 billion as of December 11. This means Hong Kong's exchange once again beat the New York Stock Exchange and Nasdaq, which raised $22.7 billion and $24.9 billion in the same period, respectively, according to financial data firm Refinitiv.

Still, the average size of IPOs this year is smaller than last year. Excluding the once-in-a-lifetime secondary listing of a company such as Alibaba, the average funds raised from listings this year as of December was down 29% from the same period last year, according to data from the Hong Kong stock exchange. Meanwhile, the number of new listings dropped 19.4% from 2018, which was a record year for the number of listings.

This year also saw several established U.S. players that focus on large deals scale back after reassessing the viability of Hong Kong listings work. Davis Polk & Wardwell, Shearman & Sterling and Paul Hastings shifted to a smaller Hong Kong IPO practice this year.

Meanwhile, the shipping firms need to expand into IPOs to be less dependent on shipping work, which has been in decline for most of the past decade, noted Patrick Yeung, HFW's Hong Kong office head and a shipping disputes partner.

The shipping market has been in decline as global trade has slowed. (Ships transport 90% of the world's goods). The World Trade Organization in October slashed global trade growth projections for 2019 from 2.6% to 1.2%, the slowest in a decade, due to rising trade tensions and uncertainty related to Britain's exit from the European Union.

"It has always been our wish to diversify into other areas. I think it's healthy," Yeung said. Now, about 40% of HFW's Hong Kong revenue comes from non-shipping work – up from just 10% –thanks to the diversification effort, he said.

Ince's Greater China head, Paul Ho, echoes Yeung's point. Ho told Law.com's The Asian Lawyer last month that the firm diversified into IPOs as a hedge against falling shipping and trade work due to the U.S.-China trade war. "If certain areas are slowing down, you have to find opportunities in other areas," he said.

It is relatively easy for the shipping firms to expand into the IPO space, as they already have the clients. Yeung said HFW had received listing inquiries from clients but the work had to go to another firm because they didn't have the capability to handle the deal at the time.

While there's little synergy between shipping clients and IPOs, HFW's Cheung is optimistic. "There is bound to be a need for fundraising," he said. "If you're based in China, there is nothing better than the Hong Kong capital markets."

For the shipping firms entering the Hong Kong IPO market, Chong's move to RPC in 2017 shows it can work. She left Sidley Austin, one of the established players in the market, after five years as a partner, to launch an IPO practice for the U.K.-based insurance disputes specialist firm.

While most of the synergy with RPC is on the M&A side, Chong and her seven-lawyer team have already completed three IPOs this year: building material machinery manufacturer China PengFei Group, China-based Green Future Food Hydrocolloid Marine Science, and Chinese property developer Yincheng International.

"The [RPC] name is new to some [of my clients], but my name is quite familiar," she said, pointing to her 20 years in the IPO market, including 12 at Sidley. "The contacts remain the same."

Cheung hopes to complete one or two listings by the first quarter next year and carry the HFW brand to the IPO market.

"We can send a message that we are more than just a shipping and litigation firm," he said. "That's my number one goal."

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Is Big Law Pulling Back From Hong Kong IPO Work?

As Hong Kong's IPO Market Stalls, Shearman & Sterling Revises Its Strategy

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