Mainland and Hong Kong IPO markets to remain strong and vibrant in 2022
- Potential full implementation of registration-based regime to benefit A-share market
- SSE STAR Market, ChiNext, and Beijing Stock Exchange to drive A-share market growth
- Return listings of China concept stocks in Hong Kong to accelerate due to lingering geopolitical issues
- More listings expected from regional high growth companies following enhancements to listing regime for overseas issuers, companies leading in sustainability and ESG in support of Mainland's 30-60 decarbonization targets, and Hong Kong's homegrown unicorns
Published: 20 December 2021
The Capital Market Services Group of Deloitte China today released its review of Chinese Mainland and Hong Kong initial public offering (IPO) markets in 2021 and their outlook for 2022.
With more and larger listings, Nasdaq and the New York Stock Exchange will take 1st and 2nd place globally in IPO funds raised in 2021. Shanghai Stock Exchange will follow in 3rd with the support of a large volume of new listings on the SSE STAR Market and significant deals on the STAR Market and Main Board. The Stock Exchange of Hong Kong and Shenzhen Stock Exchange will be in 4th and 5th.
In 2021, the Mainland capital market expanded with the establishment of Beijing Stock Exchange. This new exchange has provided an additional avenue for smaller and younger innovative companies to go public domestically. Together with the potential launch of a registration-based IPO regime for the Shenzhen and Shanghai main boards in 2022, following those introduced on the SSE STAR Market in 2019 and ChiNext in 2020, the multi-tier A-share market is set to flourish in the years to come.
In 2021, the Mainland IPO market is set to have had as many as 491 IPOs raising RMB536.7 billion, including 11 new listings on Beijing Stock Exchange raising RMB1.75 billion. These translate into a 25% rise in the number of IPO deals and 14% growth in proceeds raised when compared with 2020. Although ChiNext will have seen the most IPOs (199) followed by the SSE STAR Market (162), the SSE STAR Market will have raised the most funds (RMB202.9 billion), followed by Shanghai’s Main Board (RMB162.3 billion). Shanghai’s two markets are expected to have raised RMB365.2 billion from 248 IPOs, while those in Shenzhen are set to have had 232 new listings raising RMB169.7 billion.
"We were excited to see Beijing Stock Exchange launch within such a short period of time, including new applicants and transfers from the Select Tier of the National Equities Exchange and Quotations receiving a positive response. The rise in new listings on ChiNext and the SSE STAR Market in 2021 also reflects the strong, positive results of registration-based regime reform. These are landmarks that will shape the A-share IPO market," says Tong Chuan Jiang, A-Share Offering leader, Capital Market Services Group, Deloitte China.
Hit by ongoing geopolitical issues, regulatory changes affecting several industries in the Mainland, including the new economy and education, and speculation of interest rate hikes and reduced bond purchases, the Hong Kong IPO market slowed in Q2 and Q4 2021. However, backed by an increasingly mature ecosystem for nurturing innovative and new economy companies, the new listing regime for overseas issuers should boost dual-primary and secondary listings of US-listed China concept stocks and the listing regime for Special Purpose Acquisition Companies (SPACs) will help draw some listings of de-SPAC targets which can be high-growth businesses in Asia Pacific or privatized China concept stocks in 2022. To support the Mainland's 30-60 targets for decarbonization, more listings from sustainable and environmental, social, and governance (ESG) companies are anticipated. Some listings will come from Hong Kong's home-grown unicorns. These developments will help dissipate some of the negative impacts from geopolitical tensions, uncertainties, and tapering.
Hong Kong is expected to have hosted 97 IPOs raising HKD331.4 billion in 2021, versus the previous year’s 146 IPOs raising HKD397.9 billion, representing a 34% decline in the number of new listings and a 17% drop in funds raised. In 2021, nearly 60% of funds raised came from nine mega listings, which were dominated by new economy companies with weighted voting rights structures. The number of pre-revenue biotech listings and funds raised increased from 2020’s levels.
"In recent years, amid different challenges and uncertainties, Hong Kong has remained a resilient international financial center given its unique advantages. This is why businesses of different sizes, sectors and structures have repeatedly selected Hong Kong as a place to raise funds. We welcome the enhancements to the listing regime for overseas companies and the new listing regime for SPAC, as they will help expand and diversify the portfolio of issuers and investment products here, further elevating Hong Kong's status as a prominent mutual market in Asia," says Dick Kay, Offering Services leader, Capital Market Services Group, Deloitte China.
Measures such as the cybersecurity review regulations, reform of Chinese private education companies, the US Securities and Exchange Commission's adoption of amendments to finalize rules implementing the Holding Foreign Companies Accountable Act, and speculation about suspending overseas listings of variable interest entities have held back the US IPO market for Chinese companies, particularly in 2H 2021. There were just four new listings during the last two quarters, which will have brought the total number of listings and funds raised for the full year to about 42 and USD15.03 billion. In 2020, 35 Chinese firms went public in the US, raising USD13.77 billion. Helped by three large listings by online transportation and recruitment services platforms in 1H 2021, the number of IPOs and proceeds raised by Chinese companies in the US will have risen by 20% and 9% in 2021 from 2020’s level.
Looking into 2022, the A-share IPO market is set to continue to grow with the support of an increasing number of new listings on the SSE STAR Market, ChiNext, and Beijing Stock Exchange. Most of these will come from small and medium-sized manufacturing and technology companies. The SSE STAR Market should have 170-200 listings raising RMB210 billion-RMB250 billion in 2022. There could be another 210-240 new listings on ChiNext raising about RMB160 billion-RMB180 billion. The main boards in Shanghai and Shenzhen are forecast to have about 120-150 IPOs raising RMB200 billion-RMB230 billion.
"We are positive about the outlook for the Mainland IPO market in 2022 and subsequent years given the many significant, deep reforms of the Chinese capital market in recent years. The anticipated launch of the full registration-based IPO regime will help create a more conducive environment for businesses to raise funds more efficiently and effectively from the domestic capital market to support their development. The multi-tier capital market and interconnectivity have helped companies of different industries, scale, and stages of development tap into the fund pool in the public market. This can support the country's goal of sustainable economic growth and meeting the 30-60 decarbonization targets," adds Tong.
An acceleration in listings of China concept stocks will be a highlight of Hong Kong's IPO market in 2022, followed by listings by high growth companies in the region. Deloitte China’s Capital Market Services Group expects Hong Kong to have around 120 new listings raising about HKD330 billion.
"The increasingly mature ecosystem for innovative companies, launch of an enhanced listing regime for overseas issuers and a new SPAC listing regime, and Hong Kong's advantages as an international financial center will attract Chinese and regional innovative companies to list here in 2022. We believe more technology companies, especially those involved in Asia’s merger and acquisition boom, will be drawn to make SPAC listings in Hong Kong. The initial SPAC regime of only allowing the participation of professional investors is the starting point for Hong Kong's development into a multi-tier platform that will open to greater varieties of listing structures and offerings in the future," says Edward Au, Southern Region managing partner, Deloitte China.
"Geopolitical issues will continue to prompt China concept stocks to balance their regulatory and transaction risks with financing strategies in the longer run. These issues have also triggered certain negative factors that appear quite often to affect Hong Kong's capital market, but as China's most internationalized city with the free flow of capital, ample liquidity, and an ability to innovate and reform to embrace change, Hong Kong is certain to remain the most preferred overseas listing destination for Chinese companies," Au adds.
Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as of 31 December 2021.
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.
Sources for US IPO (Chinese companies) statistics: New York Stock Exchange, Nasdaq, Bloomberg, and Deloitte analysis.