Legal Market Overview
Although there have been periods of calm, much of 2022 has been marked out by considerable economic and political tensions across Greater China, headwinds which have impacted on transactional work handled out of Hong Kong. While many other global economies have reverted to “relative” normality post Covid-19, the Chinese government’s insistence on pursuing a policy of “zero” Covid has led to shutdowns of large cities on the mainland, which in turn have affected supply chains and inter-connection with Hong Kong (which has also had to endure fairly strict restrictions). Trade/political tensions remain high between China and the US, which, in turn has led to a dampening of M&A involving Chinese targets, as well as a huge reduction in the amount of Chinese corporates looking to list on the US capital markets. On the flip side of this, however, the Hong Kong Stock Exchange (HKEX) has continued to experience more activity, both in terms of so-called “homecoming” listings, as companies de-list from the Nasdaq in favour of listing nearer to home, as well as more broadly, as Chinese corporates view the HKEX as the most convenient and favourable venue for listing.
Indeed, despite the aforementioned problems and the heightened amount of power the Mainland wields over Hong Kong – most starkly felt through the Beijing-backed national security law – Hong Kong remains Asia’s leading international financial centre, thanks in the main due to its role as a gateway to China. And any talk of Singapore’s imminent usurping of Hong Kong as the location of choice for international asset managers or banks seem a way off.
Similarly, there have been various regulatory changes in Hong Kong which have been aimed at further increasing its competitiveness in the market. As well as the well-received “Stock Connect” scheme – introduced in 2014 and enabling Hong Kong and international investors to trade eligible stocks listed in Shanghai through Hong Kong brokers – the introduction towards the end of 2020 of the Limited Partnership Fund legislation has proved to be popular among fund managers, placing Hong Kong on a more of an equal footing with limited partnerships in other key fund jurisdictions such as the Cayman Islands, Delaware, Luxembourg and Singapore.
The enactment into law, in January 2022, of the new special purpose acquisition company (SPAC) listing regime in Hong Kong was also a major step between enhancing the competitiveness of Hong Kong as an international financial centre. These blank cheque companies (with no commercial operations), whose popularity has soared in recent years in the US as a means of raising money via an IPO for the purpose of merging with or acquiring an existing company, are now able to be listed on the HKEX. Although there has been a paucity of examples of these coming to market so far, in large part due to the economic headwinds, it will be interesting to observe the development of this product in future years.
On the debt capital markets front, 2022 marked a significant reduction in relation to high yield offerings on the HKEX, driven by broader macro/political issues, as well as considerable travails affecting the Chinese real estate market – which in turn had a huge knock on effect on Chinese real estate development companies, traditionally the most active issuers of high yield debt. Many firms reliant on property-related high yield issuance work, have in general, nevertheless, been active advising on liability management exercises and refinancing matters instead. Investment grade issuances have by contrast been fairly active, as issuers have sought to shore up capital and funding in anticipation of rising interest rates. Environmental Social Governance (ESG)-related financing transactions, whether through bond issuances or in relation to bank financings, have also been thriving, driven by investor demand and a general overall desire to meet sustainability targets.
In the legal market, as a general rule, Hong Kong serves as a hub for international firms active in the ‘Greater China’ market. The work is frequently led locally with support from the Beijing and Shanghai offices, as well as alliances with PRC law firms. This year marks the inaugural ranking for PRC firms based in Hong Kong, an acknowledgement of the rapid recent growth of firms from the Mainland establishing a presence in Hong Kong and offering increased competition in an already crowded and highly competitive market. Large UK-headquartered international law firms, including Allen & Overy and Linklaters maintain a strong presence in Hong Kong and vie for big ticket transactional work with US firms including Latham & Watkins LLP and Kirkland & Ellis. Independent Hong Kong firms are also a key component of the legal landscape, with Deacons remaining the largest and most broad-ranging in the services it offers to clients. Overall, the market has remained relatively stable, with large-scale team moves relatively rare, however, CMS continues to expand since it opened its doors in 2016, with the arrival in 2021 of both Kingsley Ong and Christopher Whiteley (who joined from Eversheds Sutherland and Ashurst, respectively) adding substantially to its overarching finance capabilities. Other notable personnel changes include Paul Jebely, whose move from Pillsbury Winthrop Shaw Pittman LLP to Withers in January 2022 affords the private wealth heavyweight a presence in the asset finance space (and an opportunity to service its impressive roster of HNWI clients in particular), and Ing Loong Yang’s recruitment in April 2022 by Akin Gump Strauss Hauer & Feld LLP from Latham & Watkins LLP,is a notable statement of intent in relation to its international arbitration offering.