NetEase seeks to raise up to $3bn in Hong Kong secondary offering

Gaming group NetEase will sell up to $3bn of shares in a Hong Kong secondary offering, in what could mark the start of a wave of Chinese companies raising capital in the city as tensions between Beijing and Washington simmer.

NetEase, one of China’s biggest makers of online video games, began placing shares with institutional investors on Monday ahead of publicly listing its stock on Hong Kong’s bourse, according to a term sheet seen by the Financial Times.

The sale is expected to raise $2.6bn but that could increase to $3bn if bankers execute a so-called “green shoe” option, which boosts the deal size. The company is set to list in Hong Kong on June 11.

NetEase shares currently trade on New York’s Nasdaq but Chinese companies increasingly fear that they could fall victim to growing US-China hostilities. President Donald Trump on Friday announced a probe into Chinese groups listed in the US and last month ordered the main federal government pension fund not to invest in such companies.

NetEase, which has traded in New York for two decades, raised the prospect of it being delisted from the Nasdaq in a filing to the Hong Kong stock exchange last week, citing tougher US regulations regarding Chinese companies.

The move by NetEase is in line with similar decisions by other Chinese companies currently listed in the US, such as ecommerce business, which is also looking to raise up to $3bn through a secondary listing in Hong Kong.

Baidu, the company behind China’s leading search engine, is also considering selling shares in the city. Alibaba raised $13bn in a secondary offering in Hong Kong last year that also came during a time of intense US-China frictions.

“More and more Chinese companies are considering Hong Kong to diversify risk . . . you don’t want to put all your eggs in one basket considering the current situation,” said Shawn Yang, managing director at Blue Lotus Capital Advisors.

The share sale by NetEase, which would be the city’s largest so far this year, could also provide a much-needed shot in the arm for Hong Kong’s credentials as a regional financial hub. The city, which has been shaken by anti-government protests for much of the past 12 months, is set to be stripped of the special trade privileges it enjoys with the US after Beijing moved to impose a national security law on the former British colony.

NetEase, which gets four-fifths of its revenue from video games, has been boosted in recent months by lockdowns imposed due to the outbreak of coronavirus in China. That trapped millions of its users at home with few alternatives for entertainment, helping to lift first quarter revenue by 18 per cent year on year.

The company would be “bringing our established brand back to China”, William Ding, chief executive of NetEase, told shareholders last week. “Returning to a market that is closer to our roots will further fuel our passion in our business and our users.”

JPMorgan, Credit Suisse and CICC are joint sponsors of the NetEase Hong Kong listing. All four companies declined to comment on the matter.

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