A private credit fund backed by Sequoia Investment Management has filed for a Hong Kong IPO, the first such listing in the city.
SIMCo Infrastructure Private Credit OFC is planning to raise about US$200m from the float, said people familiar with the matter.
The fund is taking advantage of new requirements that the Securities and Futures Commission introduced in February for authorising closed-ended funds that invest mainly in private and less liquid assets, such as private equity and private credit funds.
The securities market watchdog said at the time that funds seeking a listing should be sizeable with a minimum expected market capitalisation of HK$780m (US$100m) at the time of listing. The management company of the funds should also have sizeable assets under management of at least HK$780m invested in relevant alternative assets on a group-wide basis.
Other considerations include the performance of funds investing in relevant alternative assets run by the management company and the fund’s dividend policy.
SIMCo’s float comes at a time when international investors and Hong Kong retail investors are chasing IPOs in the city. More than 300 companies are lining up listings and recent new listings have seen their shares pop on their debuts.
The strong momentum has set a positive backdrop for alternative fund managers to expand their distribution channels via IPOs in Hong Kong.
“The Hong Kong IPO market has been booming this year and we have seen an unprecedented wave of listing applications. Having this private credit fund listed in Hong Kong for the first time as an alternative fund is another meaningful milestone for the Hong Kong ECM market,” said Cindy Shek, partner at King & Wood Mallesons.
Retail investors will also have greater access to such products, which were only available to institutional investors and private wealth clients in the past.
“The private credit fund IPO broadens the spectrum of listed investment products in Hong Kong, which has so far mainly been REITs and ETFs. Now we have got the first listed alternative fund and hopefully more will come . . . There will be a variety of different asset classes, not just confined to private credit,” said Shek.
The possibility of including alternative asset funds in the Stock Connect between the Hong Kong and mainland markets in the future is also drawing issuers to the city.
“The potential inclusion would be a unique attraction for Hong Kong as an alternative asset fund listing venue. Some Chinese alternative asset managers, as well as the global ones that want to grow their Asian footprint, have expressed interest to list their funds in Hong Kong,” said an ECM banker.
Rising popularity
SIMCo will invest in senior and subordinated economic infrastructure debt investments from sectors such as renewable energy, power, utilities, data centres, telecommunications, transport and healthcare. Subordinated debt will make up no more than 60% of the portfolio.
The fund is targeting a global portfolio and intends to allocate significantly to North America (up to 60% of its total assets). It also plans to allocate no more than 60% of its total assets in Europe (excluding UK) and no more than 30% in the UK. It is also planning to include a number of the more developed economies in Asia Pacific.
SIMCo has not yet disclosed its target yield.
Private credit fund IPOs are gaining popularity in Asia Pacific. In June, Australian alternative asset manager La Trobe Financial completed an IPO of its private credit fund, La Trobe Private Credit Fund, with total bids exceeding the maximum A$300m (US$196m) it sought to raise.
The fund takes exposure to Australian real estate and US mid-market corporates. Its units closed at A$1.985 on Thursday, compared with the issue price of A$2. It has a target yield of 325bp over the Australian base rate, equivalent to around 6.85% currently.
In Europe, Sequoia Economic Infrastructure Income Fund, which is also managed by Sequoia Investment Management, is the largest listed credit fund on the London Stock Exchange. Its dividend yield was 8.83% as of September 30.
The fund invests in economic infrastructure private loans and bonds in the UK, North America and Europe.
SIMCo Credit Asia-Pacific is the fund manager for SIMCo’s IPO and DBS is the sole listing agent.