Shanghai and Hong Kong outperform in global IPO race during first half of 2015
Both markets are expected to finish strong in 2015
Published: 24 June 2015
During the first six months of 2015, funds raised in initial public offerings (IPO) in the Shanghai and Hong Kong markets are expected to overtake two major capital markets, New York and London to rank first and second respectively, according to the latest analysis of Hong Kong and the Chinese Mainland markets by the National Public Offering Group of Deloitte China. Supported by a strong pipeline mainly made up of institutions from the financial services industry, Hong Kong is expected to continue the strong performance for the second half of the year. To pave the way for the introduction of the registration-based regime for new share issuance by the end of 2015 or early 2016, Mainland China’s stock flotations are expected to be active and frequent. This trend should sustain Shanghai to stay in a relatively top position globally at the end of this year.
Hong Kong is expected to conclude the first half of 2015 with 46 IPOs raising HK$127.5 billion, down 4% and up 57% respectively from 48 IPOs raising funds of HK$81.3 billion over the same period of last year. Nearly 80% of the proceeds came from the five largest IPOs during the past six months.
“We are excited to see Hong Kong’s IPO market heat up and proceeds surge in the second quarter to achieve the best interim performance since 2011. The top four IPOs in H shares underscored the importance of H-share listings in driving the market’s proceeds,” said Mr. Edward Au, Co-Leader of the National Public Offering Group at Deloitte China. “The strong performance of H-share listings is testimony to Hong Kong’s strong position as a platform for Chinese enterprises to connect to the international market as well.”
Looking across the border, some 113 companies are projected to complete their IPOs on the Shenzhen Stock Exchange raising RMB44 billion (HK$54.9 billion) by the end of 30 June 2015, while the Shanghai Stock Exchange would have about 79 new listings raising RMB103.4 billion (HK$129 billion). Together the two stock markets would have 192 new listings raising RMB147.4 billion (HK$192.6 billion), a rise of more than two times and more than three times respectively from the 52 IPOs completed and RMB35.3 billion funds raised during the same period of 2014.
“This is the strongest first half-year performance since 2011, and it follows the China Securities Regulatory Commission’s (CSRC) move to increase both the pace and volume of the Mainland’s new offerings by approving two batches of IPO applications each month since April. Another encouraging development is the re-emergence of large listings, which were halted in China since the second half of 2012. Both a rally for stock subscription and an investment appetite for equities were significantly boosted as a result,” commented Mr. Anthony Wu, Leader of China A-Share Capital Market for the National Public Offering Group of Deloitte China.
The high volume and larger deals are expected to bring the Shanghai Stock Exchange to the top of the IPO proceeds ranking for the second consecutive quarter this year and Hong Kong Stock Exchange to be second while the New York Stock Exchange may have to settle for the third position. Bolsa de Madrid and London Stock Exchange would take up the fourth and fifth place respectively. Shenzhen Stock Exchange can come the seventh position.
The liberalization of capital accounts and interest rates, the mixed ownership reform for banks, and the imminent launch of the Shenzhen-Hong Kong Stock Connect have spurred more than 10 Chinese institutions from financial services sector to plan to issue new shares in Hong Kong. Together with the potential listings from Chinese state-owned enterprises following the ownership reform as well as those from consumer and retail businesses, Hong Kong is expected to see at least HK$240 billion proceeds from 120 IPOs for the entire year 2015.
“The market is looking forward to seeing how the second stage consultation in Hong Kong on weighted voting rights (WVR), in particular on the secondary listing of companies with WVR structures and a Greater China "centre of gravity" will progress. We hope this proposed change can come in time for opportunities from the U.S.-listed Chinese firms at last,” added Mr. Au. “But looking into the medium-to long-run, to enhance its competitiveness as a fundraising center, it is key for Hong Kong to establish itself as a wealth management center to attract more liquidity, which will help re-rate the market and bring the valuation up in return.”
In the second half of 2015, significant developments are also anticipated at the A-share market. In addition to the proposed amendments to the Chinese Securities Law to support a registration-based regime, the IPO window for small and medium-sized city and rural commercial banks may be re-opened following a recent change in the application review status of a number of banks.
Mr. Wu said, “The establishment of a strategic emerging industries board in Shanghai and a pilot program that appears to allow 100% foreign ownership of e-commerce businesses, however, will help the re-listings of U.S.-listed Chinese technology businesses on the A-share market more in the years to come than immediately in 2015. This is due to the regulator’s priority in relieving the fundraising pressure from more than 500 companies that have filed for IPO applications before the new registration regime is introduced.
In view of this, Deloitte forecasts the markets in Shanghai and Shenzhen to have a total of 350-400 IPOs raising RMB225-250 billion in total in 2015. Small and medium manufacturing, technology and consumer/ retail companies would drive most of these new offerings.
Notes to editor:
Unless specified otherwise, all statistics are estimated and analyzed by 30 June 2015. However, statistics on the number of companies under Chinese IPO review were updated to 18 June 2015.
Sources of the statistics for the Hong Kong IPO market: Hong Kong Stock Exchange, Deloitte estimates and analyses, excluding the transfer of listings from the Growth Enterprise Board to the Main Board and proceeds raised from the over-allotment options of seven newly-listed companies, which are expected not to announce their stabilization actions by 30 June 2015; and assuming the successful listings of Vital Mobile and Red Star Macalline Group on 26 June 2015 and Legend Holdings on 29 June 2015 with each priced at the mid-point of their indicative range.
Sources of the statistics for the A-share IPO market: CSRC, Deloitte estimates and analyses and assuming the successful listings of 25 companies by or before 30 June 2015.