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Hong Kong exchange posts record profit on trading and IPO boom



Hong Kong’s stock exchange operator has notched its best-ever quarterly profit as a flood of trading and initial public offerings boosted the bourse ahead of a new chief executive taking the helm.

Hong Kong Exchanges and Clearing said on Wednesday that post-tax profits jumped 70 per cent year on year in the first quarter to HK$3.8bn (US$490m) as core business revenue driven by turnover and listing fees rose more than a third to a record HK$5.5bn. Investment income swung to a gain of HK$418m from a loss in the first quarter of 2020.

The bourse’s first-quarter performance benefited from a series of high-profile IPOs by Chinese technology companies, including that of short video platform Kuaishou, which raised more than $5bn in February.

Chinese groups trading in New York have added to the flow of big-ticket share sales in Hong Kong this year. Tech groups Baidu and Bilibili were among the companies that launched secondary listings in the city as US regulators prepared to forcibly delist groups that failed to comply with domestic accounting requirements.

“HKEX has had a strong start to 2021,” said Calvin Tai, interim chief executive, who pointed to a “buoyant IPO market and very robust trading volumes . . . set against a challenging economic and geopolitical backdrop”.

HKEX’s shares, which have doubled over the past 12 months, slipped 0.2 per cent in Hong Kong following the results announcement.

Line chart of Share price (HK$) showing HKEX’s stock has surged over the past year

Hong Kong’s position as an Asian financial hub has been called into question after Beijing imposed a draconian national security law on the city last year.

But efforts by rival exchanges in Shanghai and Shenzhen to internationalise, long a concern for HKEX, have made only limited progress. Growing hostility towards China in Washington has reinforced Hong Kong’s role as an offshore fundraising centre for Chinese companies.

“Hong Kong is still an offshore market as far as mainland China is concerned. Near offshore but still offshore,” said one HKEX insider. The Shanghai exchange’s “plans to internationalise are unlikely to undermine Hong Kong because the domestic market still suffers from a lack of capital convertibility for companies that want to raise currencies other than renminbi offshore”.

Earnings at HKEX were also boosted by trading by mainland Chinese investors in Shanghai and Shenzhen, who have snapped up stocks on Hong Kong’s market through so-called stock connect programmes.

HKEX reported average daily turnover of almost HK$61bn via mainland investors in the first three months of 2021, helping take the exchange’s total daily turnover to a record HK$224bn.

Trading by international investors in Chinese stocks and bonds through connect programmes also reached highs, with daily turnover climbing to Rmb127bn (US$20bn) and Rmb25bn, respectively.

But Louis Tse, managing director of brokerage Wealthy Securities, said turnover had dropped off at the start of the second quarter as trading by mainland investors cooled and Beijing cracked down on Chinese tech groups, many of which trade in Hong Kong.

“The [record regulatory] penalty for Alibaba sent a shockwave through tech stocks,” Tse said. “That cooled down the speculative mood in the market and slimmed down turnover.”

Tai, the interim chief executive, was tasked with steering the exchange following the departure of predecessor Charles Li, who held the role for a decade and launched both the stock and bond connect programmes. Li also led the bourse during its failed $32bn bid to buy its London counterpart in 2019.

Nicolas Aguzin, a former senior banker at JPMorgan, is set to take the reins at HKEX in May.

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Commodities broker Marex looks to list on London Stock Exchange




One of the brokers with rights to trade on the historic trading floor London Metal Exchange is heading for an initial public offering as commodity markets enjoy the biggest boom since the early 2000s.

Marex, a brokerage controlled by two former Lehman Brothers investment bankers, said on Friday it was considering listing on the main market of the London Stock Exchange.

Should it proceed, Marex said the offer would consist of a sale of shares by existing investors and that it was aiming for a free float of at least 25 per cent, meaning it would be eligible for inclusion in widely followed FTSE indices.

London-based Marex employs about 1,000 people and is one of nine members of the Ring, the LME’s historic open outcry trading floor that is now threatened with closure after more than 140 years. It has a 16 per cent market share on the LME.

The company is controlled by JRJ Group, a private equity firm founded by Jeremy Isaacs, the former head of Lehman’s European operations, and Roger Nagioff, the bank’s ex-head of global fixed income.

JRJ has a 41 per cent indirect economic interest in Marex. It is expected to reduce that stake through the London IPO although it will remain a large shareholder.

People familiar with the plans said Marex was seeking a valuation of $650m-$800m. The company is about half the size of US rival Stonex Group, which has a market capitalisation of almost $1.4bn. The IPO could come as soon as June.

The company, which has been expanding aggressively through acquisitions, made pre-tax profits of $55m in the year to December, up from $46.6m a year earlier, on net revenue of $414.7m.

However, in 2018 pre-tax profits were just $13.4m after Marex took $31.9m of legal provisions related to a warehouse receipts fraud.

Marex makes more than half its revenue from commodity hedging services that help big commodity producers, consumers and traders manage price risk. Commissions from the group’s top 10 clients increased by 17 per cent to $49m in 2020.

“The attractiveness and resilience of our business model is demonstrated by our latest set of results, which showcase continued strong performance despite the obvious macro headwinds,” said Marex chief executive Ian Lowitt, who was paid $4m last year. His basic salary is almost twice that of the LSE’s CEO David Schwimmer.

JRJ Group and its partners Trilantic Capital Partners and BXR Group acquired a majority stake in Marex in 2010. A year later it bought Spectron to create one of the biggest commodity brokers in the world. The company has been up for sale for several years as JRJ has sought an exit from its investment.

It emerged in November that Marex had appointed Goldman Sachs and JPMorgan to help advise on a possible stock market listing. One of its no- executive directors is Stanley Fink, former CEO of hedge fund Man Group.

Marex said on Friday that acquisitions and expanding into “adjacent products” would continue to form a “central pillar of its strategy”. In November, Marex acquired Chicago-based equity derivatives firm XFA.

Commodity markets have boomed over the past year on the back strong demand from China, a post-pandemic pick up in other big economies and bets on the “greening” of the world economy.

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‘A real man of mystery’: how Ian Osborne built a $1.5bn venture capital firm




When tech financier Ian Osborne invests in a company, executives must agree to an unusual clause: not to talk about it without his permission.

Such tactics have helped Osborne and his firm Hedosophia largely fly under the radar despite his involvement in high-profile investments and takeover bids over the past decade.

With early support from funds linked to media baron Michael Bloomberg, Hong Kong tycoon Li Ka-shing and the Burda family of Germany, the 38-year-old Osborne has quietly created a $1.5bn venture capital business.

According to people familiar with the matter, companies from Spotify, TransferWise and Raisin in Europe to Alibaba, Ant Financial and Airwallex in Asia have all received investment from Osborne.

One tech investor compares the urbane but reticent British investor to the well-connected PR fixer Matthew Freud: “He knows everyone.” Another, who carried out due diligence before working with Osborne, said: “He is the sort of guy who will turn up behind you on a flight to Rio. He is a real man of mystery.”

As one of the architects of the boom for special purpose acquisition companies (Spacs) — which raise cash in listed funds that then hunt for a company to take public — Osborne has helped turbocharge tech valuations.

Even as the US market cools on the phenomenon and regulatory scrutiny grows, Osborne is hoping to popularise such blank cheque vehicles in Europe with plans to raise as much as €460m with a Spac listing in Amsterdam.

Michael Bloomberg
Michael Bloomberg became a connecting thread through Ian Osborne’s career © Joe Raedle/Getty

Described by contacts as “obsessively secretive”, Osborne fiercely protects his privacy and allows publicity to be drawn to high-profile partners such as Chamath Palihapitiya, a venture capitalist.

Palihapitiya, a brash former Facebook executive, with a large social media following and a love of making provocative comments on TV, describes Osborne as “a very good yin to my yang”.

The moonshot machine

It is for the relaunch of Spacs in 2017 that Osborne is becoming best known — teaming up with Palihapitiya’s Social Capital to back the listings of companies such as Virgin Galactic, Clover Health and Opendoor.

Along the way, Osborne has amassed shares worth as much as $300m, according to a person familiar with the matter, boosted by the juicy “promote” share awards given to sponsors of the listings.

To friends and investors, he is a canny dealmaker and consummate networker, connecting rich family offices to founders needing funds to expand.

Others worry he has been at the vanguard of a wave of speculative cash, bestowing stratospheric valuations on unproven companies.

Virgin Galactic — which he helped take public in 2019 — opened the floodgates for moonshot companies with little by way of revenues to list through Spacs. More than 300 Spacs have raised $97bn this year, according to Refinitiv.

With the action now shifting to Europe, it marks a homecoming for Osborne, who splits his time between houses in London and Hong Kong, where he is a resident.

Chamath Palihapitiya
Chamath Palihapitiya describes Osborne as ‘a very good yin to my yang’ © David Paul Morris/Bloomberg

From Bloomberg to Zuckerberg

Born and raised in Richmond, London, the son of a lawyer and a doctor, Osborne studied at St Paul’s school, King’s College and London School of Economics, graduating in 2005 and going to work as an adviser to Bloomberg, who became a connecting thread through Osborne’s career.

Kevin Sheekey, Bloomberg’s longstanding campaign manager and communications chief, said Osborne began working for the then New York mayor after co-hosting a dinner in London whose guests included actress Claudia Schiffer and media scion James Murdoch.

By 2007, thanks to Osborne’s connections, Bloomberg was addressing the Conservative party conference in Blackpool. “It sounds an easy thing to do but connecting people is a rare talent,” said Sheekey. “Dozens of people around the world that Mike and I have good relationships with were introduced by Ian. Global business leaders never meet without a go-between. There is no Yellow Pages for that.”

He describes a Zelig-like quality to Osborne: “His nature is not to promote himself.”

As international adviser to Bloomberg for the next four years, Osborne continued to unleash his networking skills, gaining access to people who would become his ticket to the world of tech finance.

“At first it was like, ‘what is this British 20-something doing in the midst of US politics?’ It didn’t make much sense,” said Daniel Ek, founder of Spotify, who met Osborne in this period.

Initially, Osborne offered “advice, connections with people”, according to Ek. “But his Rolodex was off the charts for someone so young. The connection between politics and business today seems like an obvious fit but at the time no one was making the link.”

Osborne began to advise, and later invest in, Palihapitiya’s Social Capital after meeting him with Mark Zuckerberg in 2008.

Palihapitiya described Osborne as “extremely, exceptionally discreet and unbelievably trustworthy. He’s unbelievably connected. He is our modern version of a homeless billionaire. Ian is constantly working, is constantly travelling, and he collects people.”

Virgin’s spaceship
Osborne teamed with Palihapitiya’s Social Capital to back the listing of Virgin Galactic © Virgin Galactic

In 2009, he set up his own consultancy, Osborne and Partners, that took on clients including DST Global, the venture capital firm run by Yuri Milner, the Israeli-Russian billionaire.

By 2010, he was helping DST lead investments in Spotify and Alibaba — where he had forged relationships with founders Ek and Jack Ma, respectively. 

Through his time working with DST and afterwards, Osborne continued to run a PR and business development consultancy, advising the businesses of US tech billionaires from Travis Kalanick and Evan Spiegel to Zuckerberg. He remained close to Bloomberg, helping on an attempt to buy the Financial Times from Pearson in 2013.

That year, he was firmly established on the tech scene as one of the organisers of the hottest party in Davos — a “taxidermy” themed bash thrown with Napster co-founder Sean Parker and Salesforce CEO Marc Benioff.

He had also started to work informally for then UK prime minister David Cameron and chancellor George Osborne, to whom he remains close, helping open doors in the US. During the 2010 election campaign, he helped prepare Cameron for TV debates. Around the same time, he organised a trip to the US for Boris Johnson, then mayor of London.

Osborne became the “ultimate co-host” — according to one person familiar with the period — gathering people from politics, tech, finance and the arts. It was at a dinner hosted by Osborne in 2014, attended by actor Ed Norton and Arianna Huffington, that an Uber executive landed in trouble for suggesting that the company could dig up dirt on a critical journalist.

Taking ‘IPO 2.0’ to Europe

Osborne set up Hedosophia in 2012 — named after Greek gods of pleasure and wisdom — aiming to specialise in earlier stage tech firms. 

Early backers included family offices such as Germany’s Burda and funds related to Li, the Hong Kong tycoon, said a person close to the group, who added that it now has a more institutional investor base of university endowments, public pension funds and insurance companies from the US, Japan, Canada and Sweden.

Daniel Ek, founder of Spotify
Daniel Ek, founder of Spotify, recalled thinking Osborne’s ‘Rolodex was off the charts for someone so young’ © Drew Angerer/Getty

It was at a dinner in Hong Kong in early 2017 with Palihapitiya that he pitched the idea for a new sort of Spac to give tech founders an easier public listing without the risk and regulatory baggage of a traditional IPO. 

Despite being partners in the sponsor company, the pair did not split earnings equally, said people with knowledge of the situation, with Palihapitiya taking the majority of profits but also putting in greater capital. Palihapitiya also coined the new term for the Spac — “IPO 2.0” — which was draped over the New York Stock Exchange at the launch in 2017.

Since then, hundreds of Spacs have followed this strategy, launched by former bank executives, athletes and politicians keen to enjoy the almost risk-free upside of the Spac sponsor model. But even those operating around Osborne wonder whether the market has now gone too far. “The bubble is definitely bursting now,” said one.

The Osborne/Palihapitiya Spac franchise has been hit as the market has turned — with Clover’s shares falling more than 50 per cent from their highs and shares in Virgin Galactic — which has yet to make a commercial flight — down more than 70 per cent from the peak.

Osborne is determined to get his European Spac right, according to those close to the plans, cutting the financial rewards for the sponsor and bringing together a heavyweight board.

This month, he will also return to an early passion in the theatre, producing one of the first musicals to open after the end of pandemic restrictions in the West End — Everybody’s Talking About Jamie.

He will need to get used to being centre stage — in Europe at least, he has no Palihapitiya to hide behind, and the scrutiny over Spacs in the US has started to raise questions for investors and sponsors alike over whether the market has gone too far, too fast.

Additional reporting by Tim Bradshaw and Arash Massoudi

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Chip specialist Alphawave drops 10% on London debut




Shares in Canadian semiconductor group Alphawave fell as much as 24 per cent on their first day of trading in London, the latest in a string of underwhelming public-market debuts in the UK capital.

Alphawave, which launched four years ago, sold £856m worth of shares at 410p apiece, giving it an opening valuation of £3.1bn — the largest new technology listing since Deliveroo’s disastrous London launch in March. Shares closed at 370p per share, a decline of about 10 per cent.

While analysts and bankers said the fall reflected global trends rather than any underperformance of the London market, some have also questioned the group’s valuation.

“This has been an unlucky week [for IPOs],” said Russ Mould, investment director at AJ Bell. “[But] £3bn even for a well-understood industry, and even though it’s growing rapidly, you could argue was pretty punchy.”

Alphawave is relocating from Canada to the UK, with plans to build a research facility in Cambridge, an established centre for the industry. The UK boasts a number of prominent companies in the field, including Arm, which chipmaker Nvidia acquired last year, CSR and Wolfson Micro. 

Several analysts and bankers said Alphawave had fallen victim to a recent wobble in tech stocks. The technology-focused Nasdaq Composite on Monday closed down 2.6 per cent as inflation fears grow, though it has since regained some of that ground.

“The post-open dip reflects worldwide volatility in trading of high-growth and high-value stocks in recent weeks, and some investors shorting IPOs in this environment, in particular where there are low trading volumes,” said Markus Bauman, corporate securities attorney at law firm Goodwin.

Others also pointed out that rising prices for the raw minerals and metals needed in the chip industry could erode future revenues.

Alphawave’s woes come after Deliveroo’s London listing, dubbed “the worst IPO in London’s history” by one of its bankers. Shares in the food delivery app are down more than 38 per cent from their IPO price.

“There’s probably a lot of wailing and pointing of fingers, but I’m not sure it’s fair,” said Mould, pointing to more successful recent IPOs such as ecommerce company The Hut Group or cyber security firm Dartktrace. “London does like entrepreneurs and it has a good record of providing risk capital, unfortunately there’s been a bit of a bad run.”

Other chipmakers such as US-listed Nvidia have also struggled amid the recent fall in tech stocks, with its share price declining 5 per cent in the past week.

Barclays and JPMorgan acted as joint bookmakers alongside BMO Capital Markets on the Alphawave flotation. Funds managed by BlackRock and Janus Henderson agreed to buy $510m as “cornerstone” investors in the offering.

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