Hong Kong and Mainland IPO markets to heat up as third plenary session of CPC approaches
IPOs of China city commercial banks, fully convertible H-shares and RMB offerings to be highlights of Hong Kong's market in Q4
Publish date: 1 October 2013
Amid the U.S. Federal Reserve holding steady of the quantitative easing measure, the forthcoming Third Plenary Session of the 18th Central Committee ("the third plenary session" or "the third plenum") of the Communist Party of China ("CPC") is expected to provide a boost to both the initial public offering (IPO) markets of Hong Kong and the Chinese Mainland, according to an analysis on the performance and forecast of both markets in 2013 by the National Public Offering Group of Deloitte China. Coupled with the recent surge in IPO flow in Hong Kong and the fully stocked IPO pipeline, the market is well on the way to raising at least HK$100 billion by the end of 2013. As for the A-share market, IPOs are likely to restart around the third plenum.
By the end of September, Hong Kong has completed 43 new IPOs raising HK$58.7 billion* proceeds, an 8.5% drop and 31.3% rise respectively when compared with 47 listings and HK$44.7 billion proceeds recorded over the same period of last year. Nearly one-third of the proceeds raised so far were spurred from 21 IPOs that were completed in the third quarter, matching the number of IPOs of the same quarter in 2011. The numbers of listing applications (124) and active applications being processed (88) year to date have jumped up by 42.5% and 49.2% respectively.
"Hong Kong's IPO market was back on track this third quarter, especially as there was no new listing last September, one of the traditionally key IPO windows," said Mr. Edward Au, Co-Leader of the National Public Offering Group of Deloitte China. "The number of IPOs and proceeds has ridden on the stock market's momentum generated after a wave of news on the positive signs of the Chinese economy."
"It is clear that ample liquidity and positive sentiment have driven up our IPO market. It is encouraging to see that the size of the five largest IPOs, the number of listing applications and active applications being processed, the offer price, the average first-day return and the percentage of Main Board listings that were oversubscribed all improved by double-digit numbers or percentage points over the first three quarters of last year," elaborated Mr. Au.
Year to date, New York led the global IPO race (in terms of proceeds raised) with Nasdaq, Tokyo, Brazil and Hong Kong trailing. The mega listing from Suntory Beverage and Food (HK$30.2 billion) has enabled Tokyo to climb from sixth at the end of June to the third place. Hong Kong has retained the fifth spot benefitting from the listings of China Huishan Dairy, the second largest IPO year to date in Hong Kong, and Macau Legend, the second largest IPO in Hong Kong in the third quarter.
In the fourth quarter, flotations from financial institutions and retail and consumer businesses are expected to drive most of the IPO funds raised. Deloitte anticipates a number of listings will fall under the spotlight. They include one or two Chinese city commercial bank/s that should raise at least HK$7 billion each and the first fully convertible H-share listing by a private enterprise spurred by the relaxation of the overseas listing requirements for Chinese companies. A listing from either an Italian or a Japanese company is likely to become the highlight of IPO by overseas company this year following the revised Joint Policy Statement regarding listing of overseas companies by the Securities and Futures Commission and Stock Exchange of Hong Kong. Another eagerly awaited development is the debut of a Renminbi(RMB)- denominated IPO in a dual tranche, single counter mode raising up to HK$1 billion.
"In the past few years, Hong Kong's rank in global IPO fundraising has always been regarded as one of the key indicators of its success. However, while the ability to lure more larger IPOs is crucial to Hong Kong's role as an international financial center, it is more important to boost development in other areas that will strengthen its competitiveness against its peers for sustainable growth," said Mr. Au.
Mr. Au explained that RMB-denominated listings will be instrumental to bolster Hong Kong's international status given Hong Kong's advantages in pioneering RMB business and close proximity to the Chinese Mainland. Another competitive edge offering huge opportunities that Hong Kong needs to strengthen is its appeal for listing of trusts. According to Deloitte's analysis, funds raised for such vehicles are taking a significant share of the overall IPO proceeds of other major bourses this year like Tokyo and Singapore that represented around 40% to 80% against about 8% in Hong Kong.
Fuelled by the market's positive anticipation over the launch of more economic stimulus measures after the third plenum and the promising Chinese economic outlook, Deloitte expects at least HK$41.3 billion to be raised from IPOs in Hong Kong in the fourth quarter. This tally would be in line with the Firm's previous forecast range of 65-75 new listings raising HK$100-130 billion. As such, Hong Kong should be able to become one of the top five global IPO venues (in terms of proceeds raised) this year.
As for the A-share market, this is the eighth time IPO activities have been suspended since its inauguration in 1990. IPO activities have become dormant before the 18th National Party Congress of the CPC last November and Deloitte anticipates a likely return around the third plenum. Some of the 83 companies which have passed the review offering meeting are likely to become the first batch of companies gaining the written approval from the China Securities Regulatory Commission to launch the IPO. Mr. Anthony Wu, China A-Share Capital Market Leader of the National Public Offering Group at Deloitte China forecasts that around 20-30 IPOs on the A-share market would raise funds of approximately RMB25-40 billion by the end of 2013.
Notes to editor:
*exclude proceeds from the over-allotment options of Lifestyle Properties, Tenwow International, International Houseware Retail, CT Environmental Group and China Huishan Dairy that may exercise within 30 days of their listing dates
Unless specified, all statistics are updated as of 30 September 2013. A full list of key statistics of the indicators for the Hong Kong IPO market cited in the release with their year-on-year comparisons can be found in the Appendix at P.4.
All statistics exclude proceeds from close-ended investment companies, close-ended funds and special purpose acquisition companies (SPACs).
Sources of the statistics for the Hong Kong IPO market: Hong Kong Stock Exchange (HKEx), Deloitte Analysis, and excludes the transfer of listings from the Growth Enterprise Board to the Main Board.
Sources of the statistics for the A-share IPO market: China Securities Regulatory Commission, Deloitte Analysis and Estimate.
Sources of other statistics: New York Stock Exchange, Nasdaq, Tokyo Stock Exchange, Bloomberg and Deloitte Analysis.
A. Top 5 IPO venues in the world by IPO proceeds raised (Q1-Q3 2013)
|Ranking||Name of Stock Exchange||IPO Proceeds
|1||New York Stock Exchange||176.3|
|3||Tokyo Stock Exchange||64|
|5||Hong Kong Stock Exchange||58.7|
B. Key statistics of Hong Kong's IPO market
|Q1-Q3/2013||Q1-Q3/2012||Percentage change (%)|
|No. of new listings||43||47||(8.5)|
|IPO proceeds raised (HK$ billion)||58.7||44.7||31.3|
|No. of new listings by Mainland companies||23||32||(28.1)|
|Percentage of listings by Mainland companies||53.4||68.1||(14.7)|
|IPO proceeds raised by Mainland companies (HK$ billion)||48.9||37.1||31.8|
|Percentage of proceeds raised by Mainland companies||83.3||83.1||0.2|
|No. of new international listings||0||3||(100)|
|IPO proceeds raised by international listings (HK$ billion)||0||6.3||(100)|
|Active listing applications being processed||88||59||49.2|
|Lapsed listing applications||26||40||(35.0)|
|Rejected listing applications||4||7||(42.9)|
|Withdrawn listing applications||1||9||(88.9)|
|Average deal size (MB) (HK$ million) #||919.4||837.1||9.8|
|Average deal size (GEM) (HK$ million)||119.1||98.7||20.7|
|Average first-day return of new listings (%)||32.9||6.3||26.6|
|Average first-day return of new MB listings (%)||5.3||3.8||1.5|
|Under-subscription rate of new listings (%)##||20||44||(24)|
|Over-subscription rate of new listings (%)##||80||56||24|
#Exclude mega deals of over US$1 billion
## For new listings on the Main Board only