Hong Kong’s moribund IPO market seen revived by deals from innovative, ‘unbelievably huge’ China companies: Citi

‘Within the last five or six years, China has created unbelievably huge companies out of nowhere’, says Citigroup Asia head of investment banking
Hong Kong is ‘a very natural place’ for Chinese and other companies from this region to list, Jan Metzger says

Banking & finance

Mia Castagnone

Published: 7:00am, 6 May 2024

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Hong Kong’s limping initial public offerings (IPO) market, dealt a crippling blow by rising interest rates and an aversion to Chinese assets, appears to be healing. Investors are tiptoeing back, drawn by a generation of innovative, little-known companies that will also provide a rich vein of investment banking business for years to come, Citigroup’s head of Asian investment banking said.

The city made a sluggish start this year, with 12 IPOs generating HK$4.7 billion (US$601 million) in proceeds in the first quarter, or a 29 per cent drop from a year earlier. Stock exchanges in mainland China managed 30 new listings in the first quarter, which generated 23.6 billion yuan (US$3.3 billion) of proceeds, or a 64 per cent slide from a year earlier.

“Investment banking activity comes in waves, but what is most important to us is that the underlying creation of interesting companies has not stopped in China – and that is really important,” said Jan Metzger, Citi’s Asia head of investment banking.

“Within the last five or six years, China has created unbelievably huge companies out of nowhere, and that trend continues. All of those companies will eventually seek investment banking capabilities as well.”

Jan Metzger, Citi Asia Pacific Investment Banking Head Managing Director, at his offices in Champion Tower, Central. Photo: Jonathan Wong

The third-largest stock market in Asia, the Hong Kong stock exchange has faced a tough time in recent years. Proceeds from new IPOs in 2023 dropped by more than half to a 20-year low of US$5.9 billion, LSEG data shows.

The exchange, which was the world’s top IPO destination for seven of the past 15 years, dropped to the 10th position in the first quarter.

IPO volumes in Hong Kong are expected to improve on the back of a strong pipeline of candidates, as well as mainland Chinese companies switching their listing from other venues, according to Deloitte. It forecast that the city could see 80 IPOs in 2024 with estimated fundraising of HK$100 billion, driven by stronger measures taken by Beijing to recharge the mainland economy and possible interest rate cuts in the US later this year.

Are Hong Kong IPOs too reliant on Chinese government entities for support?

Hong Kong is “a very natural place” for Chinese and other companies from this region to list and the city is still one of the top international financial centres with deep capital markets, according to Metzger. He said Hong Kong has a history of being a top-ranked listing venue and it will continue to attract quality international investors.

“As we see more Chinese companies list in Hong Kong successfully, the underlying reasons for listing in Hong Kong will look more attractive to global companies,” he said.

The government has released a slew of initiatives in hopes to bolster the city’s listing regime and boost liquidity, and China’s capital market regulators announced a package of measures to boost liquidity, attract international investors and enhance competitiveness between the mainland and Hong Kong.

These measures are showing some early signs of traction. Foreign investors loaded up on Chinese stocks for a third straight month in April.

“There are interesting, innovative companies that have been coming out of China and more investors need to make a trip back to the mainland and see for themselves what is going on,” he said.

China is leading in sectors like electric vehicles and renewable energy technologies, he added.

Elsewhere the bank is finding opportunities in the region, there remained “green shoots” appearing across Asia’s investment banking scene.

This growth has propelled the bank to the top of the league tables in the first quarter of the year, topping equity capital market volumes in Asia and in the individual markets of India and Taiwan and ranking second for South Korea, according to data compiler Dealogic.

“We’re seeing a lot of activity in India, South Korea, Taiwan, and Australia – there are green shoots all over Asia. I’m quite optimistic and positive about the future,” said Metzger.