Hong Kong ranked third globally in IPOs in Q1, as funds raised fell 26pc
Hong Kong’s initial public offering market continued to decline in the first quarter, as the total capital raising was down 26 per cent on year, sending the city down the rankings to the No 3 spot globally, behind New York and Frankfurt.
Hong Kong Exchanges and Clearing’s main board and the Growth Enterprise Market saw a combined
48 new listing raising more than US$3 billion, reflecting the worst first quarter in five years. The bulk of the funds, or US$2.8 billion, were raised by 25 companies on the main board.
Christopher Cheung Wah-fung, a Hong Kong lawmakers for financial services sector, said the low IPO number in the first quarter was a result of the consultation of the listing reform at HKEX.
“Many listing hopefuls are holding up their listing plans in the first quarter. This is because the HKEX has released this listing reform consultation in February and the companies want to wait until the change of the listing rules before they apply for listing. After the rule change is settled in April, we will see more large IPOs,” Cheung said.
Cheung said Hong Kong is likely to face heated competition as mainland China also wants to introduce similar changes to attract overseas-listed companies to host Chinese depository receipts in Shanghai.
“But Hong Kong could still compete as it is an international centre and has no capital controls. In comparison, China still has capital control and has not yet fully opened to western investors,” Cheung said.
Securities and Futures Commission chairman Carlson Tong Ka-shing said last week that Hong Kong and the two mainland bourses were not direct competitors. The mainland tech giants can list as H share and A shares together.
Hong Kong’s stock exchange has set a goal of overtaking New York’s Nasdaq within five years in terms of the number of listings of mainland Chinese biotechnology companies and their market capitalisation, according to HKEX chief executive Charles Li Xiaojia.
The declining trend came after funds raised at IPO in Hong Kong in 2017 fell 45 per cent to US$13.87 billion, the lowest level since 2012, according to Thomson Reuters data.
A lack of big tech-related stocks and other blockbuster capital raising are among the reasons Hong Kong lost its global IPO market crown – a title it retained in 2015 and 2016. In 2017, the city slid to the No 3 spot globally for IPOs, overtaken by New York and Shanghai.
Last Friday marked the deadline for a market consultation on the proposed rule changes to allow large tech companies with dual-class shares structure and biotech firms that have yet to generate any revenue to list in the city, possibly as early as April. These dual class share structures are favoured by technology companies such as Facebook or Alphabet as they enable founders to maintain control of the company even though they only hold a minority of the listed shares
“There are several unicorns such as Lufax and Xiaomi which are expected to list in Hong Kong after the listing reform. These could boost the city’s competitiveness as a listing destination for new economy giants. This would also help Hong Kong to climb back to the top of the IPO market worldwide again,” Cheung said.
Only 2.8 per cent of IPO funds raised in Hong Kong in the first quarter are from high technology firms, compared with real estate companies which represented 39 per cent, and financial companies at 30 per cent.
The New York Stock Exchange ranked No 1 with 16 companies raising US$10.35 billion in the first quarter, thanks to success in attracting listing among top tech firms and biotech companies.
Nasdaq, which is more focus on technology, ranked as the fourth largest IPO market while it may challenge Hong Kong for third place amid pending listings by big players such as Chinese Netflix iQiyi.
The Frankfurt Stock Exchange, which was not among the top IPO markets in 2017, ranked second in the first quarter as the Instone Real Estate Group listing in February raised US$1.2 billion.
Shanghai declined to fifth in the first quarter from third last year, while Shenzhen’s small and medium sized market ranked sixth. Both Shanghai and Shenzhen are mulling rules change to attract technology firms to list which would post competition with Hong Kong.
Hong Kong relies heavily on Chinese companies in its IPO market. In the first quarter, Chinese companies represents 79 per cent of all fund raised. China’s Bank of Gansu is the largest IPO in the three month period in Hong Kong, raising US$900.7 million (HK$7 billion).
Nasper, the majority shareholder in Tencent Holdings, last week sold shares in the company worth
HK$76.94 billion, which is the largest deal in the first quarter.
This brought total equity capital markets activities in the first quarter to a record US$20.3 billion, up 150 per cent year on year.
Morgan Stanley ranked top of bankers in all types of equity capital market underwriting, capturing a 23 per cent market share with US$4.7 billion in related proceeds. Bank of America Merrill Lynch and Citi rounded out the top three with a 16.4 per cent and 16.3 per cent market share, respectively.