[HONG KONG] China's decision over the weekend to curb IPOs followed a splurge of new share offerings that belied expectations of a slowdown as markets went into free-fall, wiping nearly US$3 trillion off its stock markets in three weeks.

Bankers say the resilience of equity-raising activity in the face of the local market tumble and overseas threats in the form of Greece's debt crisis illustrates the power of Chinese domestic institutions, which were flush with money going into the turmoil after a year-long stock boom.

It's also a sign that Chinese institutional investors are stepping up to replace global funds spooked by the volatility after seeing 30 per cent knocked off China stocks.

Equity fund raisings in Hong Kong and China totalled US$20.6 billion in the past three weeks from 89 companies, nearly triple the volumes clocked at the New York Stock Exchange, according to Thomson Reuters data, and dwarfing London's US$1.5 billion.

"It's pretty encouraging that despite the market volatility, deals still get done," said a senior Hong Kong-based equity capital market banker who has worked on several fund raisings in the past weeks.

"The importance of mainland Chinese money has been growing. When that buyer is Chinese institutional money, that's good because that money is less likely to be heading back to Europe or the US at the first sign of volatility," the banker said.

When Chinese leasing company Far East Horizon Ltd last week tapped investors for US$581 million to finance its entry into China's fast-growing hospitals business, it mostly targeted mainland funds, one person involved with the fund raising said. "It became an easy sell," the person added.

"We didn't go to the 200-odd global funds, instead approached the Chinese funds who wanted to be part of the story. The global names were more cautious, given Greece and the China market volatility." Nearly two-thirds of Far East Horizon's placement came from Chinese investors. The company declined to comment on the deal. A similar deal two years back would have drawn mostly international funds.

Secondary shares sales are expected to continue despite the measures to curb IPOs, albeit at a slower pace, bankers said.

Hong Kong IPOs are not included in the Chinese measures. Some large ones, including China Reinsurance Corp's US$2 billion listing and bad debt manager Huarong Asset Management's US$3 billion offer, are on course with no signs of delay, people familiar with the deals said.

Secondary share placements in Hong Kong have stayed strong because the benchmark stock index had, before Monday, fallen just 4 per cent over the same three weeks.

Investors have been more receptive to buying Hong Kong share offerings as a result of that lower volatility and because mainland stocks with a second listing there - known as H shares - trade at a discount to their China-listed A shares. That discount widened to about 26 per cent on Monday as Hong Kong stocks tumbled nearly 4 per cent on fears the Greek crisis will worsen.

Bankers say that for companies with a clear purpose for the issue proceeds and compelling business case, Chinese investors have been willing to invest regardless of market conditions. Investors haven't demanded deeper discounts, and no Hong Kong IPO has been delayed or pulled.

Fund management units of large Chinese banks and insurers, China's bad debt managers and large conglomerates such as Fosun International Ltd are among the domestic investors who have been participating in the capital raisings, people familiar with the matter said.

Fosun declined to comment.

Tony Chu, a portfolio manager at RS Investments in Hong Kong, warned that there could, however, be limits to investors'sang-froid. "Bottom line is if the A-share markets consolidate and stabilise, it will really help the financing sentiment, but should the market further fall, that's definitely going to have a much more negative impact on IPO activities," he said.

REUTERS