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Jasper Moiseiwitsch

Sunwah Kingsway is the busiest IPO bank you have never heard of. The firm is one of the most active houses for leading small-cap initial public offerings on the Hong Kong exchange.
The bank is small and so are most of its deals. Among its recent offers was a HK$34 million initial public offering for mattress maker Jia Meng, and a HK$54 million listing for a windshield installer known as ZMFY.
"Kingsway do the most deals in town. Do you know the deals? No you don't," summed up a banker at a rival institution. Nevertheless, Sunwah Kingsway is a bustling home-grown institution. It is also controlled by one of Hong Kong's richest families, the Chois, who own Sunwah Group, one of Hong Kong's biggest frozen seafood importers.
The after-market performance of recent deals led by the firm has been good. On the listings led by Sunwah Kingsway since the start of 2013, the average first-day price gain is 87 per cent. The average one-month gain is 64 per cent, according to data from Thomson Reuters.

Good returns, but the public does not see much of the typical Sunwah Kingsway-led offer. The firm typically distributes its deals to family offices and hedge funds.
"They are willing to invest in a high-risk type of company … Usually the investors are a maximum-return type of hedge fund … they are willing to take risk, to take a gamble," said Michael Choi, the chief executive of Sunwah Kingsway, of the typical investor in deals led by his firm.
The company began in 1990. William Lam, a partner at PricewaterhouseCoopers who managed the books of many wealthy Hong Kong families - including the Chois - came to the family with the idea of launching a small brokerage-investment bank. Lam realised that many such families were interested in listing their business to raise cash and to create an entity that could be easily divided among the second generation as the founding shareholder entered retirement. He asked the Chois to financially back the venture, and they agreed.
Sunwah invested in Sunwah Kingsway as part of its global expansion into financial services.
In the early years, Sunwah Kingsway grew strongly, maximising its niche of serving wealthy Hong Kong clans looking to list the family firm.
Sunwah Kingsway's deal flow peaked in 1997 with an underwriting of the HK$2 billion rights issue for CCT Telecom, which stands as the firm's biggest deal.
In more recent times, the firm has been facing challenges. The Securities and Futures Commission has recommended a rule - which is awaiting legislation - making IPO sponsors criminally liable for the accuracy of information in listing prospectuses. That is already putting pressure on listing sponsors to spend more time on due diligence.
Sunwah Kingsway views the proposal as onerous because it increases the fixed costs of their deals that they can barely cover with their commission income.
The firm charges a flat sponsor fee for IPOs of HK$4.5 million. It also typically gets a 1 per cent brokerage fee on the shares it distributes, and it also levies a 2.5 per cent underwriting charge. These are healthy percentages but do not add up to much if the base deal size is below HK$50 million.
Moreover, about half of Sunwah Kingsway-led IPOs happen on the Growth Enterprise Market, Hong Kong's high-risk second board, designed for firms with limited track records, which means the possibility of a governance implosion is greater.
"It is unfair for us to know the company inside out and to know all the irregularities of the company even in our six to nine-month due diligence period," said Byron Tan, Sunwah Kingsway's head of investment banking.
The firm is also battling the encroachment of the mainland brokerages, while fighting a losing battle for talent with better financed competitors.
The firm declared negative income for its last two annual results - a combined loss of HK$121 million, and its deal flow is flattening out.
"It's very difficult to grow in this environment," said Choi. "It's a tough market, and the costs of people are very high, to grow your corporate finance team you need to hire a lot of people … and we charge such a small amount of money [for IPOs]; it's very difficult to go to the next step."


Small-cap IPO kings of Hong Kong face tough growth path

Chief executive Michael Choi says Sunwah Kingsway's clients are those who are typically willing to invest in high-risk companies for potentially high returns. Photo: Bruce Yan

Business

Money

Markets & Investing

IPO bank Sunwah Kingsway contends with mounting costs as regulatory environment looks bleak


Sunwah Kingsway is the busiest IPO bank you have never heard of. The firm is one of the most active houses for leading small-cap initial public offerings on the Hong Kong exchange.
