Flotations to dive 50pc
The number of initial public offerings (IPOs) is expected to slide about 50 per cent to between 40 and 50 this year as the regional turmoil puts a damper on fund-raising, according to professional services firm Arthur Andersen.
The company's enterprise group partner Kennedy Liu Tat-yin said it was not all doom for the market, however, as a flow of mainland-related listings should ensure this year's IPO number will still be a lot higher than the paltry 26 in 1995.
Speaking at the release of Arthur Andersen's annual IPO Watch yesterday, Mr Liu said this year's new listings would have a lower average price-earnings (PE) ratio than last year, as listing candidates faced up to tough market conditions, but would be off a higher quality.
He said: 'There will be a slowdown in the IPO market, as many investors will be taking a wait-and-see attitude, but all is not necessarily bleak.
'A lot of H-share and red-chip companies want to come and raise money in Hong Kong, as the mainland economy is still stable.' Mr Liu said market conditions meant new listings would have to cut their PE ratios by up to 20 per cent from last year's heady levels if they wanted to float successfully.
This reflected the fact the PE level across the whole market had fallen from 18 at the start of 1997 to about 12 at the end of the year.
Mr Liu said that, while Asia's financial turbulence would slow the IPO market, it would also provide Hong Kong with opportunities to strengthen its position as Asia's leading capital market.
He said: 'Our well-developed and transparent financial markets, especially our stock exchange, which is technologically very advanced, should be made even more attractive for fund-raising activities.' He suggested the establishment of a second board, or venture board, to encourage promising young firms.
The second board should relax some listing criteria, such as the three-year profit record, to help firms with 'star' potential to raise funds.
Mr Liu said Hong Kong needed to diversify - by promoting an active debt market, for example - and continue to strengthen its regulatory and monitoring systems.
Arthur Andersen's report found $80.9 billion was raised by 82 IPOs last year, against $31.2 billion from 48 firms in 1996.
Of the 82 companies, 71 were new listings, while 11 were spin-offs. The figure included 54 Hong Kong-based firms, 12 red chips, and 16 H-shares.
The best debut was by Gitic Enterprises, whose shares climbed 316 per cent above their issue price, while the worst was by Coastal Realty Group.
The stock plunged 38.6 per cent on its first day of trading.