H-share listings may top 2006 record as mainland firms skirt CSRC quotas
Firms deterred by long wait and restrictions switch focus to HK, raising the prospect of a record number of candidates this year
H-share listings in Hong Kong this year could top the record of 23 set in 2006 thanks to mainland firms' switching their listing venue from Shanghai and Shenzhen to Hong Kong due to the long queue and listing quotas on the mainland, according to PwC.
Partners at the global audit and accounting firm said the number of new H shares - mainland-registered firms listed in Hong Kong - reached 13 in the first half of the year compared with three for the whole of last year, 10 in 2012 and 12 in 2011.
"We have at least more than 10 H-share listings in the pipeline," said Edmond Chan, capital market services group partner of PwC. "If the stock market is stable, we could see 25 or more H-share listings for the whole year." Of the 1,701 companies listed in Hong Kong, 194 are H shares.
On the mainland, the listing market reopened in January after the China Securities Regulatory Commission (CSRC) temporarily shut it down in October 2012 to support the weak stock market.
Even so, it has set a quota of 100 for the number of IPOs to be allowed in the second half of this year. Some 52 were listed in the first half, raising around 35 billion yuan (HK$44 billion). Both the number and fundraising amount was half that of the year-earlier period. Up to July 1, of the 637 candidates in CSRC's approval pipeline, 568 need to have their financial statement audits updated before their applications would be reviewed.
A further 21 saw their application suspended either because their sponsoring bank or bankers have changed, or the latter were under investigation for irregularities. Besides the IPO approval bottleneck on the mainland, Chan of PwC said Hong Kong also benefitted from faster approval by the CSRC of H-share applications and the lowering of entry barriers.
The CSRC relaxed the so-called "456" requirements early last year, which said candidates seeking overseas listings must have at least 400 million yuan of net assets, a share offering size of at least US$50 million and annual net profit of at least 60 million yuan. "As long as candidates meet the [less stringent] listing requirements in Hong Kong, they will usually be approved," Chan said.
Some HK$31 billion has been raised via H-share listings in this year's first half, up from HK$22.4 billion in the same period last year. PwC projects the full-year IPO fundraising total in Hong Kong to reach HK$180 billion from 110 issuers, up from HK$171.3 billion and 112 deals last year.
This year's first-half total was HK$80.6 billion with 46 deals. Chan said the HK$180 billion estimate was based on more than 50 IPOs in the pipeline, and an average deal size of HK$1.3 billion in the first half, excluding those larger than HK$10 billion. Three large deals involving over HK$10 billion each are expected to be completed by the end of the year, he added, with firms in the car, food, banking and energy sectors tipped to be the likely candidates.
BAIC Motor, China General Nuclear Power Group, Bank of Shanghai and China Guangfa Bank were earlier reported to be likely listing candidates this year. On the mainland, PwC expects the total number of IPOs to be about 150, raising 100 billion yuan to 150 billion yuan in 2014.