The South China Morning Post reports that Poly Auction’s parent company is planning to list on the Hong Kong stock exchange for its long-anticipated IPO. The move to Hong Kong parallels a broader shift in Chinese auction houses focusing their business prospects and growth on the duty-free zone. Barbara Pollack’s excellent overview of the auctioneer both points out that trend and explains some of its sources in Beijing’s new tax policies as well as certain features of mainland banking.
First, here’s the South China Morning Post on the IPO:
The Poly Culture Group, whose parent company is the Poly Group – a state-owned conglomerate with business in arms export, real estate and mining, among other things — plans to raise around US$100 million via an initial public offering of shares in Hong Kong, sources familiar with the situation say. […]
“If everything goes smoothly, Poly will be able to have its listing hearing in Hong Kong as early as in November,” said one source. “This is the preliminary schedule. Of course, if the market environment suddenly changes, the deal might be delayed until next year.”
Poly Culture has three core business lines: art auction and management, theatre management, and investment in the movie and television business. […]
Poly’s ambition for an IPO for its cultural and auction business began about three years ago but little progress was made. China’s domestic A-share IPO market has been de facto suspended for around a year as the securities regulator works on new rules to make public listings fairer and more efficient.
Initially, Poly was very keen to list its cultural and auction business on the Shanghai Stock Exchange and it hired CITIC Securities, the mainland’s No1 brokerage, to help it prepare, the sources said.
“But later the senior management of Poly changed their mind. They say they simply can’t wait forever and nobody can clearly tell when the IPO business on the mainland will be resumed and by how,” said one of the sources. “There are still a lot of regulatory uncertainties, so to go public in Hong Kong naturally becomes a very good Plan B for Poly.”
The real question is what Poly plans to do with the $100 million it is hoping to raise. Where will that money go? Or, to put the question another way, given some of the constraints of the mainland, where does Poly—which has now beaten China Guardian and Christie’s by some measures in sale-for-sale comparisons in Hong Kong—see its growth? Overseas? Moving into different categories?
Pollack suggests an interesting twist on what is often described as the Mainland’s biggest stumbling block, lack of payment by winning bidders. Poly thinks the problem is liquidity for the buyers rather than cold feet and the auction house has a solution:
“There is a general issue of lack of transparency, and there is an issue about payment,” says Philip Hoffman, chief executive of the Fine Art Fund Group Limited, which has invested heavily in Chinese artworks, but which has come up against such problems when consigning in any of the Chinese mainland firms. “One of the biggest issues we are having with selling to Chinese or working with Chinese partners is getting guarantees of certainty of payment. We have not found consistency with abiding with U.S. and UK systems of law, in terms of bidding and having to pay. People are bidding and walking away from payment.” […]
But Li insists that Poly’s creativity and initiatives have made it more probable that a consignor will get paid eventually, if not on time. “We provide the financial service to the client who needs financial support. If they buy an artwork and they just don’t want to pay for it, we will find a way—maybe even sue them in the court,” she says. “But sometimes they buy something, and they just don’t have the way to quickly deliver the money. Then we look at this buyer’s credit, and if their background shows good credit, we can provide the service to finance the deal, such as arranging a loan from Minsheng Bank to deliver the money to the seller.”
Poly Culture Group plans US$100m Hong Kong IPO (South China Morning Post)
China’s Growing Auction Giant (ArtNews)