Mainland and HK IPO markets to benefit from further development of new economy ecosystem in 2020
- HK to see more biotech, Chinese technology and internet company listings
- Further development of STAR Market and ChiNext reform set for market spotlight
- Greater connectivity between the two capital markets expected
Published: 13 December 2019
In 2019, initial public offering (IPO) issuers, in particular those of prominent mega deals, continued with their listing plans despite lingering macro uncertainties, negative news flow and market volatility. Hong Kong's stock exchange is set to retain the global IPO fundraising crown, and Shanghai is expected to rise to 4th in the global ranking, by the end of 2019, according to the latest analysis by Deloitte China's National Public Offering Group.
Hong Kong's new listing regime continues to draw more pre-revenue biotech listings. Inspired by the mega secondary listing of a Chinese tech giant in November 2019, more well-known, US-listed Chinese technology and internet companies or those that previously planned to list in the US are expected to be attracted to Hong Kong in 2020. Reforms including the offering mechanism, proposals for a limited partnership regime for private equity funds, and expansion of the H-share full circulation program will help the market gain favor among issuers.
Further development of the Shanghai Stock Exchange (SSE) Sci-Tech InnovAtion BoaRd (STAR), such as the inclusion of some of its constituents in Stock Connect schemes, eventual entry into international indices and potential launch of a new STAR component index; as well as the potential introduction of a registration-based regime on ChiNext, should further stimulate new economy companies' desire to list on Chinese Mainland markets in 2020.
Hong Kong is expected to have recorded at least 161 new listings raising approximately HKD311.8 billion by 31 December 2019. Although the number of new listings is expected to have fallen 23 percent from 208 in 2018, the total amount of IPO funds raised is expected to have risen 9 percent from HKD286.6 billion.
The secondary listing of a US-listed, Chinese tech giant and the huge offering of Asia's largest beer company are set to help Hong Kong cement its global IPO leadership by the end of the year. This will be its 2nd consecutive year at the top after Hong Kong's three jumbo deals in 2018.
"Hong Kong continues to demonstrate its leadership as an international financial center. Despite far fewer companies listing on the GEM amid the dynamics and uncertainties of the Sino-US trade war, Brexit and the new listing regime, the market still saw very large deals raise more IPO funds this year. Hong Kong's milestone listings are not only among the five biggest IPOs worldwide in 2019, they are also likely to inspire more US-listed Chinese new economy and overseas companies to list in Hong Kong in 2020," says Edward Au, co-leader of the National Public Offering Group.
With the launch of the STAR Board, the Mainland IPO market grew rapidly in 2019. It is expected to end the year having seen some 196 new listings raise approximately RMB246.5 billion (HKD277.5 billion). This would represent 87 percent growth in its number of IPOs and a 78 percent increase in proceeds.
Last year there were 105 IPOs on the Mainland's three leading markets (Shanghai's Main Board (MB) and Shenzhen's SME Board and ChiNext) raising a total of RMB138.7 billion. This year MB and STAR Market in Shanghai are expected to have seen 120 IPOs raise RMB182.7 billion, far exceeding Shenzhen's expected 76 IPOs and RMB63.8 billion raised.
"The new SSE STAR Market was very well received even before its official launch. This gave a strong boost to the performance of the Mainland IPO market in 2019. The completion of major offerings by several banks has also helped Shanghai underscore its position as a financial center," says Anthony Wu, A-Share Capital Market leader of the National Public Offering Group.
In marked contrast to the success of Hong Kong and Chinese Mainland markets, the number of listings, total funds raised and average deal size in US IPOs of Chinese companies have dwindled this year. The global economic slowdown, ongoing Sino-US trade tensions and the new STAR Market attributed to this downtrend. The market is expected to have seen about 32 IPOs raise some USD3.6 billion, representing declines of 16 percent and 62 percent respectively from 2018.
Several developments this year hint at a positive outlook for the Hong Kong IPO market in 2020, including the addition of two stocks with weighted voting rights (WVR) structures to Stock Connect, the completion of a secondary listing by a US-listed Chinese tech giant with a WVR structure, more biotech IPOs, expansion of the H-share full circulation program, reform of the offering mechanism, proposals for a limited partnership regime for private equity funds, an upcoming consultation on the inclusion of WVR stocks into Hang Seng indices, and the potential consultation on corporate WVR beneficiaries.
These developments suggest there could be more listings from top Chinese new economy companies, including those with WVR structures, biotech businesses and international companies, in 2020. Some of these could raise at least HKD10 billion each. Deloitte therefore expects Hong Kong to have about 160 new listings raise HKD220-250 billion in 2020.
"Hong Kong's listing regime has been undergoing transformation and optimization in recent years. But this is just the first step towards luring IPOs from the new economy. The government's proposal to establish Hong Kong as a private equity hub via mechanisms like the limited partnership regime will drive investments into the ecosystem for new economy businesses. Attracting more potential investors to the territory, will help shore up funds, develop the ecosystem, and encourage more related companies to finance in Hong Kong," explains Au.
In the Chinese Mainland, further development of the STAR Market is likely to result in similar IPO performance to the other three markets (the MB, SME Board and ChiNext) in number of IPOs and funds raised. However, given the prime, well-established position of the MB in Shanghai and higher price-to-earnings ratios for STAR issuers than those on the MB, SME Board and ChiNext, the other three markets are expected to raise more funds overall in 2020 than the STAR Market alone.
"The market and regulators' confidence in the success of the trial registration-based regime is a good start for ChiNext reform, which is likely to occur in 2020. Many potential and existing listing candidates are keen to list on the STAR Market, or ChiNext, following these regulatory proposals," Wu adds.
Deloitte expects the Chinese Mainland to record more IPOs and raise more funds in 2020 than it will have in 2019. The MB, SME Board and ChiNext are expected to have about 140-170 new listings raise approximately RMB180-220 billion in total. On the STAR Market, Deloitte expects about 120-150 IPOs to raise RMB130-160 billion.
Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as at 31 December 2019.
Sources for HK IPO statistics: the Stock Exchange of Hong Kong, Deloitte estimates and analysis, assuming the completion of IPOs on the Main Board (MB) from 16-31 December 2019 at the mid-point of their indicative ranges; excludes GEM to MB transfers and over-allotment options by new MB issuers that could be exercised after 12 December 2019.
Sources for A-share IPO statistics: the China Securities Regulatory Commission, Shanghai Stock Exchange, Deloitte estimates and analysis, assuming the completion of eight IPOs from 13-31 December 2019 with proceeds calculated in accordance with the announced offering prices.
Sources for US IPO (Chinese companies) statistics: New York Stock Exchange, NASDAQ, Bloomberg, Deloitte estimates and analysis, includes an assumption of three new listings with pricing dates from 12 to 20 December debut within the mid-point of their price ranges; excludes proceeds from new listings that will not have excised their greenshoes by 31 December 2019.