Chinese Mainland and Hong Kong new listing markets to raise more funds and strive to hit new records in 2021
- Success and momentum of both markets in 2020 set to continue
- Benefits of regulatory reforms will magnify
- Listings from new economy sectors should continue to flock to both markets
Published: 16 December 2020
The National Public Offering Group of Deloitte China today released its analysis and forecasts for the Chinese Mainland and Hong Kong initial public offering (IPO) markets in 2020 and 2021.
According to its research findings, Nasdaq will have been 2020's leading IPO exchange, with Hong Kong Stock Exchange claiming 2nd place, followed by Shanghai Stock Exchange, based on the forecasted IPO proceeds raised by 31 December 2020. Shenzhen Stock Exchange is expected to take 5th place.
Driven by new economy listings, sentiment towards changes in US regulatory oversight over foreign issuers, and various reforms, Mainland and Hong Kong markets reached new heights in 2020. The key developments and reforms include: the robust development of the SSE STAR Market and related enhanced listing rules for red chips; addition of secondary listed and weighted voting rights (WVR) companies into Hang Seng Indices and the launch of Hang Seng Tech Index; and a pilot registration-based regime for ChiNext. The Hong Kong market also benefited from abundant liquidity arising from the pandemic-related monetary easing measures of different countries.
Mainland and Hong Kong markets are set to perform strongly again in 2021, driven by two main factors. This first is the pilot registration-based regime facilitating more new listings on the SSE STAR Market and ChiNext, and possibly being extended to the Main Board and SME Board. The second is market sentiment towards more stringent oversight over foreign issuers in the US. This could prompt more China concept stocks to pursue secondary listings in Hong Kong, or consider Hong Kong or the Mainland, as their priority listing destination.
By 31 December 2020, Hong Kong is expected to have seen about 145 new listings raising about HKD397.3 billion, against 164 IPOs raising HKD315.5 billion in 2019. This represents a 12% drop in the number of new listings, but a 26% rise in IPO proceeds. Ninety-eight percent of the proceeds came from Mainland businesses, including 16 new listings that raised at least HKD7.8 billion each. Six of these were secondary listings.
"Although a Chinese fintech giant failed to dually list in Shanghai and Hong Kong this November, the Hong Kong market still outperformed its peers and beat its 2019 performance. We were glad to see how the positive impact of listing regime reform that began in 2018 unfolded and facilitated the development of the ecosystem for the new economy sector in Hong Kong. Also, market concerns about instability and uncertainty around the US presidential election dissipated. Improved market sentiment and investment appetite fueled the completion of more and larger deals in the fourth quarter," says Edward Au, Southern Region managing partner, Deloitte China.
The Chinese Mainland, meanwhile, is expected to have recorded 388 new listings raising RMB464.5 billion by the end of 2020, following 201 companies raising RMB249.1 billion in 2019. The number of new listings and proceeds are set to have surged by 93% and 87%. The Shanghai market will lead with 228 new listings raising RMB338.2 billion, and Shenzhen is set to have seen about 160 IPOs raising RMB126.3 billion.
"We are excited to see market liquidity and investment sentiment maturing, which enabled the A-share IPO market to reach record-highs in its number of new listings and fundraising in 2020. In recent years, the Mainland capital market has undergone intensive, rigorous reforms, most notably the introduction of the SSE STAR Market for innovative sectors and the expansion of the registration-based regime from the SSE STAR Market to ChiNext. These two markets showed the sharpest growth this year from their 2019 performance," adds Dick Kay, Leader of the Deloitte China National Public Offering Group.
Despite concerns about more stringent regulatory oversight of foreign company listings in the US, the US IPO market for Chinese companies is still set to have had more new listings and raised more funds in 2020, with a 9% increase in the number of IPOs to 35, and a 267% jump in fundraising to USD13.7 billion. These increases are due to mega listings by electric vehicle manufacturers, a fintech company and an online real estate platform, and indicate there will still be US financing opportunities for Chinese companies in some sectors.
In 2021, the National Public Offering Group forecasts that more than 10 secondary new listings in Hong Kong will raise proceeds of over HKD100 billion. They include renowned technology and new economy enterprises, with some having corporate WVR beneficiary structures. Another four to five jumbo listings from new economy businesses each raising at least HKD10 billion are expected to complete. Together with listings of life sciences and healthcare companies, including from the biotech sector, improved valuations driven by a pickup in the Mainland economy, and expanding market liquidity from diversified investment products and overseas funds seeking higher returns, Hong Kong is expected to have about 120-130 IPOs in 2021 raising more than HKD400 billion.
"Hong Kong has the ecosystem and excellent conditions to strive to raise a record amount of IPO funds in 2021. Its listing environment has become increasingly conducive to fundraising by new economy companies. More investment funds are setting up here due to the new limited partnership fund regime," says Kay.
"The launch of the Hang Seng Tech Index, incorporation of WVR and secondary stocks into Hang Seng indices, conclusions of the corporate WVR beneficiaries consultation, proposals for a paperless listing and subscription regime, and sentiment towards changes in the US regulatory environment, will provide further impetus for secondary listings of US-listed Chinese companies from innovative sectors. An efficient secondary listing process, improved stock liquidity, and proven fundraising capacity can lure more secondary listings of China concept stocks to Hong Kong," adds Kay.
Research also suggests the capacity of the Mainland IPO market will expand further in 2021. Although most issuers will still be small or mid-scale, every market is expected to see more new listings and raise more funds. The SSE STAR Market is forecast to have about 150-180 IPOs raising about RMB250 billion-RMB300 billion; 140-170 companies could go public on ChiNext, raising RMB140 billion-170 billion; and the Main Board and SME Board are likely to have about 120-150 new listings raising RMB130 billion-RMB170 billion.
"We look forward to seeing more good results after the full implementation of a pilot registration-based regime for the SSE STAR Market and ChiNext, the potential expansion of this regime to the Main Board and SME Board, the return listings of more red-chip companies, and implementation of the proposed delisting mechanism. The Chinese Mainland is now truly developing a multi-tier capital market that can support the nurturing, growth and development of businesses of different types, operations and sectors," concludes Kay.
Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as at 31 December 2020.
Sources for Hong Kong IPO statistics: the Stock Exchange of Hong Kong, Deloitte estimates and analysis; excludes GEM to MB transfers.
Sources for A-share IPO statistics: the China Securities Regulatory Commission, Shanghai Stock Exchange, Shenzhen Stock Exchange, Deloitte estimates and analysis.
Sources for US IPO (Chinese companies) statistics: New York Stock Exchange, Nasdaq, Bloomberg and Deloitte estimates and analysis.