After hitting a four-year low this year, the initial public offering market in Hong Kong is expected to pick up in the second half of next year as the mainland economy rebounds, say Ernst & Young and KPMG.
The two leading professional services firms forecast private enterprises will fuel the upturn in listing activity. Not much contribution is foreseen from the traditional drivers, large state-controlled mainland companies, as many of them have already gone public in the past decade.
"The uptick in December could provide momentum into the first half of the coming year, largely because many of the measures to boost the economy will only be implemented after the [country's] leadership transition in March," said Ringo Choi, a partner at Ernst & Young.
"The best window for listing candidates should be very limited and be available in the second half of next year after the government policies take effect."
Choi said the average size of next year's listings would be up to HK$1 billion, with several power companies, renewable energy firms and property developers waiting in the queue for flotation.
On the role of cornerstone investors in future listings, he said their significance should continue next year because poor investor sentiment and lacklustre debut performances had dented retail demand for new shares.
Cornerstone investors have generally accounted for a third of initial share sales in the past three years, when Hong Kong topped the listings charts as the world's biggest market for fundraising. The situation has dramatically changed this year, with much of the capital-raising activity coming through block-share trades or high-yield bonds amid poor investor sentiment.
People's Insurance Co (Group) of China, the largest non-life insurer on the mainland, attracted a record 17 cornerstone investors, which subscribed to more than half of the entire share offering.
"Without the backing of cornerstone investors, issuers and bankers are unlikely to go ahead with their listing plans as demand for new shares is at a trough," said Choi, who projects the total funds raised would recover to the HK$130 billion level next year from a range of HK$80 billion to HK$90 billion this year.
Paul Lau, a partner at KPMG China, said: "The lacklustre performance of newly listed companies, together with insufficient demand for initial public offerings, have deterred issuers from launching IPOs, or, in many cases, delayed planned listings even when approved by the Hong Kong stock exchange."
KPMG projects new offerings to raise up to HK$125 billion next year, with about 85 listings.
In the first 11 months of this year, only HK$88 billion was raised from initial share shares, much lower than the HK$260 billion raised last year. This is partly because of a lack of mega offerings so common in the past years and overseas applicants, according to data compiled by Ernst & Young.
According to KPMG, the listing of international companies in Hong Kong played a crucial role in boosting fundraising in the past few years.
Listings by 19 global companies represented 52 per cent of the total proceeds last year, compared with three international listings that accounted for 7 per cent of the total this year.