Hong Kong to regain top IPO destination crown
Hong Kong is expected to regain its position as the top destination for IPOs with estimated fundraising of around HK$300 bn ($38.4 bn) in 2018, after losing its IPO crown to New York in 2017.
The strong performance this year has been driven by three major deals from the technology, media and telecoms (TMT) sector, which altogether raised HK$135 bn.
The influx of ‘new economy’ companies is set to boost the total number of new listings to hit a record 208. In 2018, 36 IPOs came from the new-economy sector, accounting for more than a quarter of the 133 IPOs recorded on the main board, according to analysis from financial services firm KPMG. This compares with just 11 companies, or 15 percent, of the 80 main board listings in 2017.
‘The new listing regime for companies from emerging and innovative sectors has successfully generated significant interest from new-economy companies globally and helped transform Hong Kong into a hub for the new economy,’ says Maggie Lee, head of the capital markets development group for Hong Kong at KPMG China.
Since its implementation in April this year, the new listing regime has attracted four pre-revenue biotech companies and two TMT companies with weighted voting-rights structures to complete their IPOs: three of them rank among the top 10 largest IPOs in Hong Kong in 2018.
‘The new listing regime, as part of the wider effort to promote the development of the new economy in Hong Kong, helps nurture an ecosystem for these companies,’ Lee continues. ‘It also enables investors to learn about investing in emerging and innovative businesses, as well as their technologies, business models and strategies. Listing interest from new-economy companies is therefore set to remain strong.’
Meanwhile, the A-share market in China sees slowing IPO activities amid a decline in listing approvals.
KPMG forecasts that the Shanghai Stock Exchange and the Shenzhen Stock Exchange will raise a combined ¥138 bn ($20 bn) from 105 IPOs in 2018, compared with ¥230 bn from 436 listings a year earlier. Despite the slowing market, the average deal size has more than doubled from ¥0.53 bn to ¥1.31 bn.
KPMG’s analysis also finds that the number of active applicants in the A-share market has further decreased from 511 at the beginning of the year to 270 as at November 30, due to increasing application withdrawals and reductions in new listing applications. This is a significant normalization process for the development of an effective and efficient capital market.
Small and medium-sized companies from the industrials and TMT sectors are expected to make up a majority of the A-share IPOs. The upcoming establishment of a new high-tech board in Shanghai is set to further stimulate the market.
‘The creation of a new high-tech board in Shanghai is expected to occur in 2019, and will likely garner notable interest from new economy companies seeking to list in mainland China,’ says Louis Lau, partner in the capital markets advisory group at KPMG China. ‘The new board would allow for greater inclusion and support for high-tech and innovative companies, and provide a platform to experiment with a registration-based system for IPOs.’
A strong IPO pipeline and continued interest from new-economy companies will allow Hong Kong to raise more than HK$200 bn from 200 new listings in 2019.