Hong Kong still on track to take one of top three IPO positions in 2015
Strong pipeline, IPO suspension in A-share market and slowdown in other markets to help sustain Hong Kong’s leadership amid U.S. interest rate hike and weaker Chinese economy
Published: 29 September 2015
Following a sharp correction across the global stock markets in August and strong volatility in the A-share market since mid-June, Hong Kong and Shanghai are expected to continue to come top and second in the global initial public offering (IPO) ranking in terms of funds raised respectively in the first three quarters of 2015, according to the latest analysis by the National Public Offering Group of Deloitte China. Amid lingering uncertainty in the timetable for the U.S. interest rate hike and outlook of a weaker Chinese economy; Hong Kong’s strong IPO pipeline; suspension in IPO activities in the A-share market since early July, as well as a slowdown of offerings in other key stock exchanges, all of these factors will help Hong Kong remain as one of the first three IPO venues globally by the end of 2015.
By 30 September 2015, Hong Kong is expected to record 72 new listings that will raise HK$156.4 billion, 13% fewer IPOs and 19% more funds against 83 IPOs and HK$131.3 billion raised over the first three quarters of 2014. During the past three quarters, five extra-large deals contributed to more than two-thirds of the total funds raised in the market.
“Expectations over the timing of the U.S. interest rate hike, weaker Chinese economic performance, steep correction in major stock markets, and a jittery A-share market were all factors that contributed to the Hong Kong stock market’s tumble in the third quarter,” said Mr Edward Au, Co-Leader of National Public Offering Group at Deloitte China.
“We are, however, looking forward to more positive news, including a solid timetable for the interest rate increment in the U.S. and more Chinese economic stimuli measures after the Fifth Plenary Session of 18th Communist Party of China Central Committee. They are critical to huge offerings, which are waiting in the wings, as these listings require a stable stock market to support a larger fund appetite,” added Mr Au.
However, Deloitte maintains its IPO forecast for Hong Kong in 2015 to have about 120 new listings that will raise approximately HK$240 billion. Approximately six to seven companies with large-to-mega IPOs have applied for listing before the end of the year and towards the end of September. Over half of the IPOs come from Chinese financial services firms, with the others from consumer/ retail business and the infrastructure sector. Altogether, they can contribute as much as HK$100 billion to the IPO funds raised by Hong Kong if the market is conducive. In addition, the IPO pipeline has more than 90 IPO candidates planning to debut before the U.S. interest rate rise this December or next January, which will represent a higher cost for all capital activities and the outflow of capital to the more developing markets.
Mr Au suggested that the key for Hong Kong’s longer-term success as a top IPO venue will be to drive more inflow of capital into the city. That include strengthening its advantages as a platform for Mainland companies to go international, developing itself to become a mutual market for Asia and encouraging more multinational companies and Chinese firms to establish their corporate treasury centres in the city. The latter two measures will help diversify Hong Kong’s IPO portfolio to spur more listings from high-growth or small-to-medium-sized companies in Asia.
As for the A-share market, it saw 192 companies raise RMB147.4 billion through new listings in the first nine months of 2015. Excluding the third quarter of 2013, the IPO activities for this third quarter were the slowest in five years – completing merely five IPOs and raising RMB1.24 billion. Following strong volatility in its stock market, IPOs on the Mainland were suspended since 4 July 2015.
“The first three quarters of this year were among the most erratic for IPO activities at the A-share market, which experienced a speed up in new listing processes earlier in the year followed by approval of large and even jumbo listings, then the subsequent suspension of IPOs by early July,” said Mr Anthony Wu, Leader of China A-Share Capital Market of the National Public Offering Group, Deloitte China.
Mr Wu told, Deloitte expects that IPOs at the A-share market may not be able to resume in the remaining months of 2015. Despite various measures and controls, it will take time for investors to regain confidence in the A-share market and for the market to steadily pick up. Before such conditions come into place, reform for the Chinese capital market is expected to be slow and IPO activities will be put on hold.
Given that 28 companies were approved to list in July and another 42 companies have passed the meetings of the Public Offering Review Committee of the China Securities Regulatory Commission to date, Deloitte estimates that only about 30-50 of these companies will be able to complete their listings once IPOs restart. The majority of these offerings are expected to be small to medium in scale and come from the manufacturing sector.
Unless specified otherwise, all statistics are estimated and analyzed by 30 September 2015.
Sources of the statistics for the Hong Kong IPO market: Hong Kong Stock Exchange, Deloitte estimates and analysis, excluding the transfer of listings from the Growth Enterprise Board to the Main Board and proceeds raised from the over-allotment options of three newly-listed companies on the Main Board, which are expected not to announce their stabilization actions by 30 September 2015.
Sources of the statistics for the A-share IPO market: CSRC, Deloitte estimates and analysis.