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Mainland IPO fundraising to become more robust but Hong Kong listings to slow in 2022

  • Expansion of registration-based regime to the two Mainland main boards to help stimulate IPO activity in 2H 2022
  • Prolonged Russia-Ukraine conflict, US interest rate hikes and tapering, and valuation cuts to continue to hamper Hong Kong IPOs in 2H 2022

Published: 22 June 2022

Deloitte China's Capital Market Services Group (CMSG) today released its interim review and outlook for the Chinese Mainland and Hong Kong initial public offering (IPO) markets.

In 1H 2022, the lingering Russia-Ukraine conflict, sharp rise of interest rates and tapering in the US, the Mainland's pandemic situation and control measures resulted in jittery stock markets across the globe. Weak, less liquid markets prompted a plunge in the number of new listings and funds raised in many key capital markets, including New York and Hong Kong. However, following years of deepening reforms and measures to encourage return listings of red chips, Shanghai and Shenzhen stock exchanges will have risen to become the two largest fundraising venues in the world in 1H 2022. Korea Stock Exchange will take 3rd place after the listing of an electronic vehicle battery manufacturer, which will also be the world's largest IPO in 1H 2022. The Dubai Financial Market and National Stock Exchange of India will be in 4th and 5th respectively, with a listing on each of these bourses among the top five global IPOs in 1H 2022.

The CMSG report indicates that the anticipated launch of registration-based regimes on the Shanghai and Shenzhen main boards and the continuous deepening of capital market reforms are set to provide a strong boost to the A-share IPO market in 2H 2022. As a result, IPO activity is expected to accelerate. The Russia-Ukraine conflict that has weakened global supply chains and the economy are to continue to pose the greatest risk and uncertainty to the outlook for global IPO markets, followed by the pace of the rebound in China’s economy after the ongoing pandemic. Hong Kong, as an open, international market, will continue to be affected by external economic and political factors, and trends and developments in other global capital markets. As a result, its IPO market performance in 2022 is expected to be slower than it has been in the last four years.

By 30 June 2022, the Mainland's market is expected to have had about 168 IPOs raising RMB310.9 billion in 1H 2022. In 1H 2021, 245 new listings raised RMB209.3 billion. This forecast represents a 31% drop in the number of companies going public but a 49% rise in proceeds raised. The mega listings of a telecommunications operator and an oil and gas company in Shanghai will have helped drive most of this rise in proceeds. Markets in Shanghai will have contributed RMB208.7 billion through 68 IPOs, with the Shenzhen bourses raising about RMB99.4 billion from 81 new listings. Beijing Stock Exchange, which supports listings of startups and young, innovative companies, is forecast to have raised around RMB2.8 billion from 19 new listings.

"We have been excited to see the measures encouraging red chips to list in the A-share market that helped the mega listings of a telecommunications operator and an oil and gas company in Shanghai. This enabled Shanghai Stock Exchange to retain the jewel crown in global IPO fundraising in 1H 2022. Shenzhen Stock Exchange’s high volume of IPO deals also made it stand out from other stock exchanges as it came second to Shanghai Stock Exchange. These are remarkable results from red chip listing reform and the registration-based regime despite negative sentiment from the Russia-Ukraine conflict, US interest rate hikes and tapering, and the Mainland's pandemic situation and controls," says Dick Kay, Offering Services leader, Capital Market Services Group, Deloitte China.

Hong Kong is forecast to have had 24 new listings raising about HK17.8 billion in 1H 2022, versus 1H 2021’s 46 new listings raising HKD213 billion. This represents a 48% drop in deal volume and a 92% plummet in deal size. In 1H 2022, the market recorded only one large listing, by a rare earth manufacturer. Two China concept stocks with weighted voting rights structures listed by way of introduction, further shrinking the amount of funds raised.

"The US and other key markets experienced the same downtrend in IPO activities as Hong Kong did in 1H 2022. Reduced valuations, especially for tech businesses, have prompted US-listed China concept stocks that need to ameliorate delisting risks to make introductory listings here rather than raise massive sums as they did in the past. It will take time for valuations and the Mainland economy to rebound to reinvigorate Hong Kong's listing activity," says Robert Lui, Southern Region Offering Services leader and Hong Kong Offering leader of the Capital Market Services Group, Deloitte China.

In the US, listings of Chinese companies have remained weak as more than half of China concept stocks fell under the provisional and conclusive lists of issuers under the Holding Foreign Companies Accountable Act. Just three companies will have gone public in 1H 2022, raising a mere USD80 million. This contrasts with the 38 Chinese businesses that listed in 1H 2021, raising USD14.3 billion. The number of IPOs will have plunged by 92% and funds raised are set to have tumbled by 99%.

"Until discussions on cross-border audit oversight have reached an agreement or a turning point, the outlook for Chinese companies listing in the US will remain uncertain in 2H 2022. However, this will provide a support for Hong Kong's IPO market. Subject to the valuations of the American Depository Receipts of these China concept stocks, many of them will be keen to explore different ways of listing in Hong Kong. These include dual primary, secondary, or introductory listings, or delisting from the US and re-listing in Hong Kong through acquisition by a special purpose acquisition company (SPAC)," adds Allen Lau, Capital Market Services Group leader, Deloitte China.

With potential large listings in the pipeline, more than 200 listing candidates have been approved for IPOs but not yet debuted, and there are over 400 active listing applications in the Mainland, the CMSG anticipates that for the full year, about 140 to 160 companies will list on the SSE STAR Market raising RMB230 billion to RMB260 billion. Another 190 to 210 businesses are forecast list on ChiNext, raising RMB190 billion to RMB215 billion. The main boards in Shanghai and Shenzhen are likely to have about 80 to 100 IPOs raising as much as RMB140 billion to RMB170 billion. Beijing Stock Exchange will have about 50 to 80 new listings raising approximately RMB10 billion to RMB15 billion.

"We believe the Mainland's IPO activity will remain at a normal pace throughout 2022 on average. It may be able to gain momentum in the second half of the year following the continuous reform of the registration-based mechanism," says Tong Chuan Jiang, A-Share Offering leader, Capital Market Services Group, Deloitte China.

Against its Q1 2022 forecast for the number of new listings and proceeds raised in Hong Kong, which was based on the assumption that the Russia-Ukraine conflict would soon subside and the Mainland's pandemic situation was set to improve swiftly, the conflict instead continued through the traditional listing window in Q2 of late May and June. It will continue to affect global supply chains, the economy, and capital markets. On this basis, the CMSG now expects Hong Kong to have about 70 new listings raising HKD160 to HKD180 billion in 2022. Return listings of China concept stocks will be the key theme, with IPOs from other technology, media, and telecommunications, life sciences and healthcare companies, and businesses with environment, sustainability, and governance capabilities being the highlights.

"A strong IPO pipeline of more than 160 applicants, including China concept stocks; some potential large or mega listings and biotech company IPOs; reforms including a streamlined settlement cycle due in Q4 and enhancements to the stock connect program including the anticipated launch of yuan-denominated stocks for Southbound Stock Connect; and Hong Kong's solid, unique advantages should support Hong Kong's IPO market in 2H 2022," adds Edward Au, Southern Region managing partner, Deloitte China.

"Set against the sharp decline in the global IPO market, the adjustment in Hong Kong's IPO market is still less significant. In the medium to long run, Hong Kong will remain a promising international fundraising hub and super connector for local, regional, and global companies of all sectors, sizes, and listing structures with more diverse innovative investment products and different market developments."

The performance of the SPAC listing market in Hong Kong in 2022 should mirror trends in conventional IPOs. Following the listings of two SPACs, another 10 SPACs are now awaiting listings. Due to market volatility, the number of SPAC listings in 2022 is unlikely to exceed 10, with each raising around HKD1 billion.

Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as of 30 June 2022.

Sources for A-share IPO statistics: the China Securities Regulatory Commission, Shanghai Stock Exchange, Shenzhen Stock Exchange, Beijing Stock Exchange, Deloitte estimates and analysis; excludes transfers from the Select Tier of National Equities Exchange and Quotations to Beijing Stock Exchange.

Sources for Hong Kong IPO statistics: the Stock Exchange of Hong Kong, Deloitte estimates and analysis; excludes GEM to MB transfers and SPAC listings.

Sources for US IPO (Chinese companies) statistics: New York Stock Exchange, Nasdaq, Bloomberg, and Deloitte analysis.

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