The IPO market in Hong Kong is set to slow in 2002, said Deloitte China recently wen releasing its interim review and outlook for the Chinese Mainland and Hong Kong markets.
In 1H 2022, the lingering Russia-Ukraine conflict, sharp rise of interest rates and tapering in the US, China's pandemic situation and control measures resulted in jittery stock markets across the globe, the review says.
Weak, less liquid markets prompted a plunge in the number of new listings and funds raised in many key capital markets, including New York and Hong Kong, the review adds.
However, following years of reforms and measures to encourage return listings of red chips, Shanghai and Shenzhen stock exchanges will have risen to become the two largest fundraising venues in the world in 1H 2022, Deloitte China noted.
Review highlights
- Korea Stock Exchange will take the third place after the listing of an electronic vehicle battery manufacturer, which will also be the world's largest IPO in 1H 2022.
- The Dubai Financial Market and National Stock Exchange of India will be in 4th and 5th respectively, with a listing on each of these bourses among the top five global IPOs in 1H 2022.
- The anticipated launch of registration-based regimes on the Shanghai and Shenzhen main boards and the continuous deepening of capital market reforms are set to provide a strong boost to the A-share IPO market in 2H 2022. As a result, IPO activity is expected to accelerate.
- The Russia-Ukraine war that has weakened global supply chains and the economy are to continue to pose the greatest risk and uncertainty to the outlook for global IPO markets, followed by the pace of the rebound in China’s economy after the ongoing pandemic.
- Hong Kong, as an open, international market, will continue to be affected by external economic and political factors, and trends and developments in other global capital markets.
- As a result, the IPO market in Hong Kong is expected to see slower performance in 2022 compared with the past four years.
- By 30 June 2022, China’s market is expected to have had about 168 IPOs raising RMB310.9 billion in 1H 2022.
- In 1H 2021, 245 new listings raised RMB209.3 billion. This forecast represents a 31% drop in the number of companies going public but a 49% rise in proceeds raised.
- The mega listings of a telecommunications operator and an oil and gas company in Shanghai will have helped drive most of this rise in proceeds.
- Markets in Shanghai will have contributed RMB208.7 billion through 68 IPOs, with the Shenzhen bourses raising about RMB99.4 billion from 81 new listings.
- Beijing Stock Exchange, which supports listings of startups and young, innovative companies, is forecast to have raised around RMB2.8 billion from 19 new listings.
- The IPO market in Hong Kong is forecast to have had 24 new listings raising about HK17.8 billion in 1H 2022, versus 1H 2021’s 46 new listings raising HKD213 billion.
- This represents a 48% drop in deal volume and a 92% plummet in deal size. In 1H 2022, the IPO market in Hong Kong recorded only one large listing, by a rare earth manufacturer.
- Two China concept stocks with weighted voting rights structures listed by way of introduction, further shrinking the amount of funds raised.
The US and other key markets experienced the same downtrend in IPO activities as Hong Kong did in 1H 2022, said Robert Lui, Southern Region Offering Services leader and Hong Kong Offering leader of the Capital Market Services Group, Deloitte China.
Reduced valuations, especially for tech businesses, have prompted US-listed China concept stocks that need to ameliorate delisting risks to make introductory listings here rather than raise massive sums as they did in the past, Lui added.
“It will take time for valuations and the Mainland China's economy to rebound to reinvigorate Hong Kong's listing activity,” he predicted.
In the US, listings of Chinese companies have remained weak as more than half of China concept stocks fell under the provisional and conclusive lists of issuers under the Holding Foreign Companies Accountable Act, Deloitte China said.
Just three companies will have gone public in 1H 2022, raising a mere US$80 million, the firm pointed out.
This contrasts with the 38 Chinese businesses that listed in 1H 2021, raising US$14.3 billion, Deloitte observed, adding that the number of IPOs will have plunged by 92% and funds raised are set to have tumbled by 99%.
Support for the IPO market in Hong Kong
Until discussions on cross-border audit oversight have reached an agreement or a turning point, the outlook for Chinese companies listing in the US will remain uncertain in 2H 2022, said Allen Lau, Capital Market Services Group leader, Deloitte China.
“However, this will provide a support for the IPO market in Hong Kong,” he pointed out. “Subject to the valuations of the American Depository Receipts of these China concept stocks, many of them will be keen to explore different ways of listing in Hong Kong.”
These include dual primary, secondary, or introductory listings, or delisting from the US and re-listing in Hong Kong through acquisition by a special purpose acquisition company (SPAC), he added.
The performance of the SPAC listing market in Hong Kong in 2022 should mirror trends in conventional IPOs, Deloitte China said.
Following the listings of two SPACs, another 10 SPACs are now awaiting listings, the firm observed.
Due to market volatility, the number of SPAC listings in 2022 is unlikely to exceed 10, with each raising around HK$1 billion, the firm estimated.
