Factors including Sino-US trade war, Brexit to continue to loom over Hong Kong's position in global IPO ranking in 2019
SSE STAR Market to boost Shanghai's role as a financial center
Published: 19 June 2019
The Hong Kong and Shanghai stock exchanges are expected to rank third and fourth respectively in global initial public offerings (IPOs) by funds raised in the first half of 2019, affected by turbulence in the macroeconomic and political environment and other major stock markets, according to the latest analysis from Deloitte China's National Public Offering Group. The New York Stock Exchange and NASDAQ are forecast to have stood firm in first and second place with their completion of several jumbo deals.
As it enters the second half of 2019, Hong Kong will be no exception to other major capital markets in remaining overshadowed by the developments and uncertain outcomes of events like Sino-US trade negotiations, Brexit and tense US-Iran relations. The eventual scale of mega issuances waiting in the wings will depend on actual market conditions when they go public. Meanwhile, Shanghai's position as a financial center is set to strengthen further when trading on the Sci-Tech InnovAtion BoaRd (STAR) of Shanghai Stock Exchange (SSE), a new sub-market for innovation and science companies, commences in July.
Based on current information about IPOs set to debut this month, by end-June 2019, Hong Kong is expected to have recorded 76 IPOs raising a total of about HK$69.5 billion. This is a sharp fall from the 101 IPOs recorded in the first half of 2018, when nearly half of new listings were on the GEM. Helped by two prominent deals, 1H 2019 total deal value was up about 38% from the HK$50.4 billion posted in 1H 2018.
"Hong Kong is still transforming its listing platform to embrace the listings of varieties of new business models arising from local, regional and global innovative and technological developments and our ever-changing world. We welcome the fact that high-growth companies continue to go public amid a tumbling stock market exacerbated by Sino-US trade tensions and Brexit. They helped Hong Kong to a strong third place in the global IPO race despite other stock exchanges recording larger offerings," says Edward Au, co-leader of the National Public Offering Group.
"We saw more new economy and biotech IPOs in Hong Kong before and immediately after the new listing regime. This includes eight pre-revenue biotech IPOs and two mega IPOs with weighted voting rights structures. The market so far seems receptive to pre-revenue biotech and life science and health care listings and other potential candidates from these sectors could debut this year. We look forward to more changes in the traditional investment makeup of Hong Kong's stock market, and its development into a full-fledged biotech hub and fundraising center," adds Au.
The Mainland IPO market has maintained a similar pace to last year's and is expected to have recorded 64 new listings raising RMB60.4 billion by end-June 2019. This would be a slight rise of 2% in the number of IPOs (from 63) and a 35% drop in proceeds from RMB93.1 billion. Shanghai Stock Exchange looks set to lead in proceeds raised with RMB33.1 billion (HK$38.1 billion) while Shenzhen is likely to have seen more new listings (37).
"Regulators have sought to promote greater stability in Mainland markets. This has resulted in a more orderly pace of IPO launches. Plans to switch to list on the brand new SSE STAR Market and dwindling average fundraising across all three markets (the Main Board, SME Board and ChiNext) have led to fewer IPO funds being raised this half," comments Anthony Wu, A-Share Capital Market leader in Deloitte China's National Public Offering Group.
With no large internet or tech company offerings, the size of the US IPO market for Chinese businesses is expected to have shrunk from 1H 2018's 17 IPOs raising US$4.16 billion to 15 IPOs raising US$1.55 billion. This would represent declines of 12% in deal volume and 63% in deal proceeds. The five largest IPOs by Chinese firms are set to be from the consumer and education sectors, with financial services expected to dominate overall deal volume. Deloitte believes the substantial impact of the trade war and new Shanghai board on Chinese companies' US listing plans and sentiment will surface later this year.
Despite concerns around trade negotiations, additional tariff arrangements and embargos, statistics and the IPO application pipeline continue to support a positive outlook for the Hong Kong IPO market in 2H 2019. Deloitte maintains its full-year forecast at approximately 200 new listings raising HK$180 billion-HK$250 billion. Huge offerings from a renowned overseas consumer brand, a Chinese financial institution and a global tech giant are likely in the third quarter. Meanwhile, a stable pipeline of IPO applications including more than 170 candidates suggests new listings volume will be well-supported.
"The success of these three larger deals will help pave way for other potential large listings, including a financial services provider, a spin-off of a local consumer group and a TMT company. They could raise as much as at least HK$7.8 billion each and two of them are said to originate from Europe. These prospective issuers have diverse businesses, are prominent in their sectors and are the types of companies that are crucial to Hong Kong's role as an international financial center and Asia's international listings hub," says Kinson Lau, leader of Southern China region of National Public Offering Group of Deloitte China.
Back across the border, Shanghai is set to share more of the spotlight once formal trading starts on the STAR Market at SSE. Deloitte expects about 70-90 new listings to complete on the new board in 2019. Another 110-150 IPOs on the other three Mainland markets should raise total proceeds of at least RMB120 billion this year.
"We continue to evaluate how early IPOs on the SSE STAR Market might be perceived, priced and traded, and how the pilot registration-based system will be received. There should be room for the STAR Market to demonstrate its fundraising capability in its early days, and we hope more Chinese new economy companies will find it a good platform for financing and promoting their businesses, especially while the Chinese economy faces downward pressure," concludes Wu.
Notes to editor:
Unless specified otherwise, all statistics are updated with our estimates as at 30 June 2019.
Sources of HK IPO statistics: the Stock Exchange of Hong Kong, Deloitte estimates and analysis, assuming the completion of nine IPOs on the MB from 21-28 June 2019, each priced at the mid-point of their indicative ranges, and one introductory listing; excludes GEM to MB listing transfers and proceeds from the exercise of over-allotment options by issuers newly listed on the MB in June 2019 as part of market stabilization actions expected to complete by 30 June 2019.
Sources A-share IPO statistics: the China Securities Regulatory Commission, Deloitte estimates and analysis.