By Isabella Steger
REUTERS/Todd Korol
Hong Kong’s bid to become an international listing center for resource companies is running up against one problem—when it comes to digging things out of the ground, investors here don’t quite get it.
One of the first companies to take advantage of the newly open window for Hong Kong initial public offerings, Canada’s Sunshine Oilsands Ltd., is postponing its meetings with prospective investors because it wants to attract Canadian money too, the WSJ reports Monday.
Unlike their Canadian counterparts, who have decades of experience investing in companies that need money to hunt for resources deep beneath the earth, Hong Kong investors are still making decisions based on metrics like cash flow and net profit, say resources bankers.
Sunshine Oilsands is not yet profitable, with a net loss last year of 76.78 million Canadian dollars (US$77.28 million).
It’s a dilemma that more capital-seeking resources companies may face. As the WSJ notes, Sunshine Oilsands is seeking a Hong Kong listing partly because it has three Chinese strategic investors, China Life’s China Life Overseas unit, Bank of China Group Investment Ltd. and Cross-Strait Common Development Fund Co. Ltd. But many fund managers based in Hong Kong, let alone retail investors, are still unsure how to value exploration-stage resource companies. These companies traditionally listed in London or Toronto, but the pool of capital available in Asia, and the proximity of Hong Kong to these companies’ customers in China are making Hong Kong an attractive alternative.
In an interview with the WSJ in November, Jeremy Sparrow, who heads the Asian operations of Russian investment bank Renaissance Capital, said investors here are slowly maturing. He noted that RenCap recently helped Australia’s Sundance Resources, whose assets are in central Africa, raise US$77 million in equity. More than 60% of that capital came from investors in Singapore and Hong Kong, he said.