IPO activities in Shanghai and Hong Kong to remain robust in 2018 following regulatory developments
Impact of U.S.' tax reform, normalization of interest rate, balance sheet cut onto emerging markets cannot be underestimated
Published: 19 December 2017
The National Public Offering Group of professional services organization Deloitte China today has released its review and outlook of the initial public offering (IPO) markets of the Chinese Mainland and Hong Kong in 2017 and 2018 respectively. The jewel crown of the global IPO proceeds ranking of 2017 is to be claimed by the New York Stock Exchange (NYSE) with its strong deals since the beginning of the year followed by the Shanghai Stock Exchange and then the Stock Exchange of Hong Kong.
In 2018, IPO activities of the Chinese Mainland are expected to slow down slightly due to the tighter scrutiny following the establishment of the new Public Offering Review Committee. Hong Kong's IPO market is likely to remain vibrant at a similar level as 2017 with more IPOs emerging from or related to the new economy sectors resulting from the planned listing regime reform. But the overall capital flow and liquidity of the world’s IPO market is to be shaped by key global developments, in particular the interest rate hikes by the Federal Reserve, cut down of the balance sheet, and tax reform in the U.S., reduction in the quantitative easing (QE) programme by the European Central Bank, and ongoing focus on the stability of the Chinese economy.
By 31 December 2017, excluding the transfer listings from the Growth Enterprise Market (GEM) to the Main Board (MB), Hong Kong is expected to complete 161 new listings raising approximately HK$128.2 billion. This represents a 34% growth in the number of IPOs but a 34% fall in the IPO funds from 120 new listings raising HK$195.3 billion in 2016. Both the numbers of new listings for the market and the GEM reached new highs. But the overall proceeds slipped with a dwindled average deal size and fewer mega offerings.
"Thanks to the four large to mega new listings debuting in the last quarter of 2017, Hong Kong has cemented its position as this year's third largest IPO funding venue over the last 12 months. This year we also saw a record high of the number of IPOs from overseas companies due to an improved market valuation. The positive market sentiment resulting from the anticipated interest rate hike timetable, China's 19th Communist Party Congress as well as more southbound capital inflows from the maturing market connectivity programs boosted the appetite for IPO subscription activities," noted Mr Edward Au, Co-Leader of the National Public Offering Group, Deloitte China.
For the A-share market, Deloitte forecasts 436 IPOs raising approximately RMB230.4 billion by 29 December 2017 if 11 scheduled new listings are to be completed from 16 December 2017 onwards. This would translate into a 92% rise in the number of new listings and a 53% improvement in IPO funds raised from 227 IPOs raising RMB150.4 billion in 2016. The Shanghai Stock Exchange is set to continue to raise more funds at RMB137.7 billion than the Shenzhen Stock Exchange, which would raise RMB92.8 billion though the former had slightly fewer new listings (214 IPOs) than the latter (222 IPOs) during 2017.
"The vibrant IPO activities of the Chinese Mainland market have considerably benefited from the supervision of the stable number of IPOs to the market, a faster IPO pace and a stabilized IPO price. Compared with last year, it is exciting to see the line of candidates awaiting listing review significantly reduced by more than 200 companies," said Mr Anthony Wu, Leader of A-Share Capital Market of the National Public Offering Group at Deloitte China.
Since the beginning of the year, the NYSE has been leading the global market with more and larger deals. The Shanghai Stock Exchange has outpaced Hong Kong due to its higher number of big new listings. The London Stock Exchange is likely to place in the fourth position for 2017 with less funds from prominent listings.
Looking ahead to 2018, Deloitte is cautiously optimistic about Hong Kong's IPO market outlook. The changes to the listing rules as well as the plan to expand Hong Kong's IPO regime are going to fuel stronger interest to list in Hong Kong. Together with the nearly 160 companies that have submitted IPO applications and at least five companies from the technology, finance, and life science health care sectors that may launch huge offerings in Hong Kong, Deloitte forecasts about 150-160 IPOs raising at least HK$160-HK$190 billion there by the end of 2018.
Mr Au said the GEM consultation conclusions, changes to GEM and MB Listing Rules and the upcoming plan to expand Hong Kong's listing regime including a market consultation on the subject are poised to strengthen Hong Kong's super-connector role, as well as its positioning as both an international financial centre and the major fundraising hub for Southeast Asian countries, the Belt and Road Initiative and the cluster of cities in the Guangdong-Hong Kong-Macau Greater Bay Area. Attracting high profile issuers from the emerging and innovative sectors that are now listed on the New York Stock Exchange, Nasdaq or the London Stock Exchange to the Hong Kong bourse would help improve the sentiment from the new economy and high growth sectors to list there. At the same time, Mr Au said the impact of the various macro-economic developments including normalization of the interest rate, cut down of the balance sheet and tax reform in the U.S., reduction of the QE programme by the European Central Bank, and the market's strong focus on the stability of the Chinese economy cannot be underestimated and could take a toll on both the market liquidity and valuation.
Given the strong assurance by the Chinese regulator to the market on tighter review and scrutiny over IPO applications, and the recent rejected applications, Deloitte anticipates that Mainland IPO activities will moderately slow down in 2018. Given China's role in the global economy, small and medium manufacturing and technology companies in terms of the number of upcoming new listings will still be the major trend in the A-share IPO market. Deloitte, therefore, anticipates the Chinese Mainland to finish 2018 with about 320-380 IPOs raising approximately RMB170-200 billion.
Notes to editor:
Unless specified otherwise, all statistics were updated with assumptions as at 31 December 2017.
Sources of the statistics for the Hong Kong IPO market: the Stock Exchange of Hong Kong, Deloitte's estimates and analyses, assuming the successful listings of five companies in the Main Board and three companies in the Growth Enterprise Market with each to be priced at the mid-point of their indicative range, and excluding the transfer of listings from GEM Board to the Main Board and proceeds of 14 newly-listed companies at the Main Board raised from their market stabilization actions by 31 December 2017.
Sources of the statistics for the A-share IPO market: China Securities Regulatory Commission, Deloitte's estimates and analyses, including the assumption of the trading in the shares of 11 issuers to commence between 16-29 December 2017 with each to be priced at the mid-point of its indicative range.