Poly’s Planned Hong Kong IPO Reveals Global Auction Powerhouse Ambitions

A South China Morning Post article reports today that mainland China auction company Poly Culture Group is planning a Hong Kong IPO, a move which will place the state-owned house in a position to compete with top global companies on an international stage.

The report states that the company is opting for a Hong Kong IPO in lieu of an abandoned plan to list on the Shanghai Stock Exchange, which the company deemed too risky due to the mainland’s shaky stock market. Poly plans to raise around US$100 million in shares, and the listing will make it the first major Chinese auction house to go public outside the mainland. One anonymous source said that the listing could happen as early as November.

As a result, the auction house will emerge as a major player on the global market, contending with international heavyweights Christie’s and Sotheby’s. Poly first challenged them in 2012 when it held its first ever Hong Kong auction. In order to compete with these more established rivals, it offered a much lower buyer’s premium fee than these competitors, charging only 15 percent compared to Sotheby’s 25 percent on items up to HK$400,000, and 20 percent on those between HK$400,000 and HK$8 million.

The auction house’s foray into Hong Kong comes as Sotheby’s and Christie’s make their way into the mainland. Christie’s held its first Shanghai auction in September—the first international auction house to ever gain mainland access without a joint venture—and Sotheby’s will be holding a joint-venture Beijing auction in December after signing a deal in 2012 with Beijing GeHua Art Company.

The massive rise in demand for Chinese art among Chinese collectors has propelled the company to the position of the third largest auction house in the world after Christie’s and Sotheby’s, and it is followed closely by its Chinese rival China Guardian. According to an estimate by CLSA, the Chinese art market has grown from $1.5 billion in 2008 to $5.1 billion last year, and is expected to keep climbing. Growing prices thanks to an influx of new Chinese collectors was reflected in this fall’s recent Asian art and luxury sales, which commanded a plethora of record-breaking and above-estimate prices. Sotheby’s Hong Kong sales especially stood out, breaking 16 price records, including one for Chinese contemporary art with a Zeng Fanzhi painting that sold for $23.3 million. While Poly’s main focus right now is classical Chinese art—paintings and calligraphy made up half the value of all items auctioned last year—it may move more into luxury items such as jewels and watches as it emerges on the global market.

A recent investment shakeup at Sotheby’s also means that the timing is ripe for Poly to make a move toward an IPO. Earlier this month, investor Dan Loeb increased his share in Sotheby’s to 9.3 percent and wrote a public letter calling for Chairman Bill Ruprecht to step down from the company, prompting Ruprecht to announce that the company had taken a “poison pill,” flooding the market with additional shares to dilute the value of the activist investor’s stock. It is possible that Poly may consider purchasing a stake in Sotheby’s, which would provide it with even more influence in the global auction market than it it is already set to have.

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Art & Auction