Companies Line Up to List: A Hong Kong Analyst's Sleepless Year, and Her Opening | 2018 Stories No. 5

HKEX grabbed its last chance. Yang Lin, nowhere near the center of any of it, is learning to find her own place.

"Recording the actions and everyday lives of ordinary people," Walter Harrington said, "is something we do far too little of in this trade. Such stories record how people behave as they search for meaning and purpose — their motives, feelings, beliefs, attitudes, grievances, hopes, fears, achievements and longings. They help a person understand his place in the world."

He once wrote a story about a family "whose teenage boy had killed himself two years earlier. I tried to explain to them the kind of story I wanted to write, how deep I wanted to go. The father listened for a long time and finally said, 'So you want to know what goes through my mind when I pray alone in a quiet room.'"

In its simplest form, Harrington said, it comes down to this: how do people live, and what do they value?

Our lives, each of them, make up this world.

"2018 Stories" is a new column from QDaily.

The plane touched down at Hong Kong airport at nine in the evening. Yang Lin had just finished a hurried two-day trip to Beijing, and she decided to go straight back to the office to put in a few more hours. The taxi crossed the Tsing Ma Bridge, passed the West Kowloon high-speed rail station and ran through the Western Harbour Crossing. The towers of the financial district were still lit. The elevator climbed more than a hundred meters in seconds. Yang Lin put down her bag, opened her laptop and started on the documents and slides she needed for the next day. She did not leave the office until two in the morning.

Yang Lin is 27. She works on IPOs at an investment bank in Hong Kong.

In April 2018, under CEO Charles Li — a man outsiders call ambitious, even reckless — the Hong Kong Stock Exchange launched its biggest reform in 25 years, cutting the bar for a listing sharply. It would now accept companies with dual-class shares, and biotech firms that had yet to earn a profit or even book revenue.

Xiaomi, Meituan and a crowd of other names familiar to mainlanders rang the bell in Hong Kong. That is why the press treated this round of reform as harvest season for the so-called "new economy companies" — the firms that, like Xiaomi and Meituan, had grown large on the back of the mobile internet boom.

In the second half of 2017, Yang Lin, already working on IPOs, began to sense the market was about to change.

This took no great foresight. The exchange had put out consultation papers more than once, and from their own dealings with it her team believed reform would come sooner or later. "The market assumed it would definitely happen; we just didn't know the date. Once the paper was out, it meant they could formally accept your listing application."

Reform meant more companies allowed to list, which meant bigger business that no bank could afford to miss. So they sent people out to sell listing plans and services to prospective clients, and started building teams for the deals ahead.

Since she entered finance six years ago, Yang Lin has moved through a string of different jobs. After more than two thousand days that all looked alike, she seemed used to this long, life-draining way of working: long hours, high intensity, no letup. But the stretch that had just ended was still the hardest of her career.

For over half a year, at least three of her five workdays ran past 1 a.m. One or two nights a month she worked straight through. If the next day allowed it, she would go home to sleep six or seven hours, skip the morning altogether and come back to the office after lunch.

Writing pitch books, designing restructurings, combing through financial statements, checking the relevant laws and rules, running due diligence, finding buyers, filing applications and prospectuses — the process is long and tangled. Yang Lin, who had worked on several IPOs, knew every part of it.

She remembers what her boss asked her: "We're setting up a new biotech team. Are you interested in moving over?" She says she was excited.

Not only because the exchange's lower bar had won her a pile of deal opportunities, but because of what the biotech industry itself would teach her.

Yang Lin has no medical training, but meeting these biotech companies as a banker let her watch medical technology advance. "In science fiction, people write about tiny robots of the future you can put inside a body, machines that perform surgery. You read it and think, that's science fiction, that can't happen in real life." Then she started meeting biotech companies and found some were doing exactly that work, and trying to sell it at scale.

"Every branch of this field I touch, most of what has changed is news to me. I'm in a state of overload from all the new things I'm learning," she said. "That's when you think science really is wonderful."

In this field, Yang Lin felt, she could genuinely help. In biotech, getting a product from approval and R&D through to market and profit takes a long time. Take drugs: Nature has reported that a single drug takes an average of 13.5 years to develop and costs $1.78 billion — and that leaves out all the money poured into drugs that never made it.

To get through those unprofitable years, a biotech company needs enough ways to raise money, "but on the market there are generally only two: equity and debt." "The thing about debt is that you have to repay it no matter what. If the research fails, you still owe the money. For a business as risky as biotech, that's not a good way to raise capital."

Without a listing, equity financing means private funds, and their terms are usually harsher and their prices lower. "If you can list, of course you want to list." All of this is where a banker can help. "In this environment you see companies like that every day, and you try to pick out of the pile the ones you think have potential, the ones the market will like, and help them raise money and do better. That in itself is worth doing."

When the exchange formally passed the reform in April, Yang Lin's work picked up. Around then, most of her hours went into pitch books. But whether a bank wins a mandate does not turn on the quality of the pitch book; it also turns on the bank's clout and its relationships. That is not something Yang Lin can affect, and it left her frustrated and anxious.

She did not have to wait long. Demand from biotech companies to list burst open.

On August 1, Ascletis Pharma, which makes drugs for hepatitis B, hepatitis C and HIV, became the first unprofitable biotech firm to list in Hong Kong. Hua Medicine, BeiGene and Innovent Biologics followed, and more than a dozen others had filed prospectuses and were waiting for the exchange to review and approve them. By the exchange's own count, 166 companies listed in the first nine months of 2018, more than 50% above the same period in 2017.

There were more companies waiting to raise money than the banks could handle. "Right now a lot of banks are hiring anywhere they can, because there simply aren't enough people. Plenty of analysts have been dropped straight onto pharma deals," Yang Lin said. "Headhunters keep asking whether I want to move, and my own team has been hiring nonstop — but it's hard." Across Hong Kong, the price of any analyst who can cover biopharma has "gone up sharply." She cannot say by how much, "but their bargaining power now is enormous."

Her own work has found its rhythm. She is running five or six deals, not counting the ones she helps colleagues with, and flies to the mainland five or six times a month. Days go to due diligence at one site after another. In the gaps she opens her laptop in the back of a taxi to work on documents, or joins conference calls. At night she goes back to the hotel and works alone in her room until three or four.

"When I was online I'd see a lot of my colleagues. They must have been out on due diligence too, also away from the office, and there we all were online at three or four in the morning. 'Oh, you're up.' 'Oh, you too.'"

Yang Lin says she can get emotional. If a company is in bad shape she turns negative, thinking: you can't list anyway, and you won't raise money on your terms either. But when she finds a company that is genuinely worth something — "doing something pretty good, or with a management team I like" — she wants to get it listed, wants to get it funded.

She used to come close to hating financial markets, mostly because she thought finance was, at bottom, a game with numbers. "Look at the swings in the mainland stock market. How much of that is a real change in what a company is worth? Most of the price moves come from speculation. And those weightless moves land on real people. If you manage risk badly and one stock trade goes wrong, it can change a whole family's life." That was how she thought then: "Back then I felt finance was evil, that it gave society nothing much."

Yang Lin likes medicine. Both her parents are surgeons, and growing up in that house left her with a long-running interest in the field. After finishing school on the mainland she came to Hong Kong to study, and interned at an NGO that worked with hospitals, companies and others to measure how well pilot healthcare models performed; it compiled the findings into reports that fed into health policy. Before graduating, she — a business school student — applied to public health programs, then dropped the idea, worried that learning how to write public health policy in the United States might not fit China.

Her parents were doctors, but practical worries made them steer their daughter away from the same path. So Yang Lin followed the crowd into economics and finance, and never stopped doubting the choice. In her first university class, when the professor explained that economics measures human choices by cost and benefit, she could not hold back: isn't that a very narrow yardstick for the world? Plenty of other things people value cannot be reduced to profit and loss.

The change came in her second year. She joined a program the school ran in which a veteran of the industry led a group of students in giving financial advice to a small company. Watching him use financial analysis on the company's books, Yang Lin saw that the tools really could produce concrete suggestions for running the business better.

That pushed her to look, within finance, for work that touched the real economy. She started out closer to secondary-market trading, which gave her no sense of purpose. She wanted to be "nearer the real economy," and after hunting for a while she landed her current job taking companies public.

Even now, with most of her energy on pharma, she still feels that. The field moves fast — biomedicine, devices, gene technology, AI diagnostics all keep advancing, and products and services keep arriving. In China and abroad, the U.S. Food and Drug Administration and China's National Medical Products Administration (NMPA) are chasing the technology, writing rules for it, but in many areas the rules still trail far behind the industry.

The April news brought a boom, and the turn came just as fast. In the second half of 2018, the companies that chose Hong Kong were the first to feel capital go cold. By the end of September, more than 70% of that year's new listings were trading below their offer price.

"Sentiment in the second half of last year and the first half of this year was clearly better; now people are clearly more careful," Yang Lin said. "That's how investors sound to me too."

In the first half of the year her bank was still expanding. When she complained about being short-staffed, her boss's answer was, "If you know someone suitable, just hire them." By the second half, the hiring budget was frozen.

In finance, the cycle is something you can never get around.

Yang Lin does not read all this as the start of another crisis. Partly that is the habitual caution of the trade; partly it is that she has seen the ups and downs before. "I remember June 2015. The A-share market was still above 5,000 points, and two months later it was under 3,000. Everyone knew 5,000 wasn't real, but it was a game of pass the parcel. Then one day someone tells you the music is about to stop, and once everyone believes it, it does."

The way she remembers it, all of financial Hong Kong was cutting jobs then. In January 2016 Barclays said it would shut its Asian cash equities business, cutting 1,000 staff across Asia, Hong Kong included. In April, JPMorgan Chase cut 30 people from Asian wealth management. In June, Bank of East Asia cut 180. Over the year, HSBC's Hong Kong headcount fell by a full 1,000.

Over a longer span, layoffs look like the normal state of Hong Kong finance. Since the 2008 crisis, word of cuts at big institutions has surfaced again and again. Year after year of swings, troughs and layoffs teaches something a warning cannot. "Before you've been through a crash, that worry isn't in your head — or you know about it but don't believe it will happen. Only after you've lived through the ups and downs does it become real."

Looking at today's market with that in mind, Yang Lin is not especially gloomy. Biotech companies, by their nature, need a great deal of money, and now that the listing route in Hong Kong is open it is one of the best ready-made ways to get it. A bad market, she believes, only knocks out the speculative deals; good companies with real needs still have their chance.

By the end of 2018, counting from the year she arrived to study, Yang Lin had lived in Hong Kong for eight years. After SARS, to revive the city's tourism and economy, the mainland signed the Individual Visit Scheme with Hong Kong. Then came pregnant mainland women crowding Hong Kong's hospitals to give birth, parallel traders running back and forth to buy up infant formula, and a tourism boom that gentrified the city and pushed up the cost of living — all of which made Hong Kongers more and more resentful of mainland visitors. Tensions sharpened after 2010, until February 2012, when a group of Hong Kong internet users took out ads in Apple Daily and Sharp Daily calling mainland tourists locusts.

Yang Lin watched all of it. In her first years she did not like the city at all; she thought Hong Kongers carried too much misunderstanding and hostility toward the mainland. In the end the city changed her anyway. After she started working, talking with colleagues made her see that the genuinely hostile were few, and that when something came up, people could trade views easily enough. "Gradually I came to feel I belonged here a bit."

Her loyalties swing between the mainland and Hong Kong. She likes the mainland's convenience — food delivery, parcels, mobile payment — and she likes Hong Kong's sense of order.

The biggest change is in how she thinks. Asked whether she still holds that the economist's profit-and-loss framework cannot explain what people do, she answers vaguely that the framework is, up to a point, fairly practical. "You could say that's what working in finance, or being in Hong Kong this long, has done to how I think."

Now and then, when the pressure is at its worst, every kind of bad feeling comes over her. "This industry is genuinely exhausting. If you don't actually like it, you probably won't last." She pauses, then adds: "I do actually like it."

(Yang Lin is a pseudonym, at the interviewee's request.)

Cover image/NetEase; a still from The Wolf of Wall Street