Hong Kong: A slowdown in deal-making activity has left bankers in Hong Kong scrapping for business, yet one area is buzzing: buyouts of companies listed on the city’s stock exchange.

The latest high-profile case involves L’Occitane International SA, which is on the verge of ending its 14-year run as a Hong Kong-listed company.

Bloomberg News reported this week that billionaire owner Reinold Geiger is nearing a deal to take the skincare company private with funding help from Blackstone Inc.

Other big names include luggage-maker Samsonite International SA, which is keeping the possibility of a take-private deal open amid interest from the likes of Carlyle Group Inc and KKR & Co, while also considering a dual listing in the United States, according to people familiar with the matter.

China’s economic difficulties and often strained relations with rivals such as the United States are driving the trend because that tension flows directly into Hong Kong’s stock market, which is heavily weighted to the world’s second-largest economy.

Many firms listed in the city are trading at a discount to Europe and the United States, said Xuong Liu, a managing director at consultancy Alvarez & Marsal (A&M).

“We’re poised to see a lot more take-private transactions in 2024 and beyond,” said Liu, who is also co-leader of A&M’s transaction advisory group in Asia. “This is just the beginning.”

Hong Kong’s Hang Seng Index is the world’s worst-performing major equity gauge over the past 12 months, sliding 16%, while the S&P 500 has climbed 27% and the FTSE 100 is up about 2%. Japan’s Nikkei 225 has risen more than 40%.

Hong Kong drew in global businesses in the past because of its connections with China and its enormous potential for growth, but that is “no longer the case,” according to Liu. “They now see more value in other exchanges as they can gain exposure to other global investors.”

Buying out a company in Hong Kong and relisting elsewhere is a chance to fetch a higher valuation, said Richard Griffiths, head of Asia mergers and acquisitions (M&As) at BNP Paribas SA.

The appetite for Hong Kong take-private deals is particularly strong when it comes to global brands, Griffiths said, noting that many companies and private-equity firms are looking at possibilities.

“While there are still many challenges to overcome, financing is getting more stable and there’s a clearer path on interest rates, which have peaked,” he said. “Those factors give more confidence to bidders, which is key for M&As.”

The MSCI Hong Kong gauge is trading at 11.9 times forward earnings estimates, below its five-year average of 15 and Asia Pacific peers’ at around 14.

Turning to more local and regional firms, ESR Group Ltd’s top shareholders are studying options including a take-private of the Asian warehouse developer following a slump in its shares, which are down 71% from a 2021 peak.

Owners of Hong Kong broadband provider HKBN Ltd are deliberating again, including potentially taking the company private or bringing in new investors.

Even Chinese state-owned enterprises (SOEs) listed in mainland China and Hong Kong are pondering taking private the entities listed in the city, according to Samson Lo, head of Asia Pacific M&A at UBS Group AG.

“SOEs have cash, financing conditions have improved and valuations are low, so now the timing is good for them to pursue a take-private deal,” he said.

For one, China National Pharmaceutical Group Co said it plans to take Hong Kong-listed China Traditional Chinese Medicine Holdings Co private.

The process of taking a company private and relisting elsewhere is challenging for Chinese firms without global operations, but it could be the best approach now, with alternative asset managers under pressure to invest, A&M’s Liu said.

 - Bloomberg