Hong Kong on track to retain its crown as leading global market for IPOs

To remain on top in 2017 Hong Kong will need to woo more technology IPOs, says PwC

PUBLISHED : Sunday, 11 December, 2016, 3:46pm
UPDATED : Sunday, 11 December, 2016, 10:29pm

Hong Kong is likely to maintain its position as the world’s largest market for initial public offerings this year, thanks to the fundraising demand from mainland companies despite global uncertainties.

Fundraising demand among the Chinese financial sector will help propel the city into the top global rankings next year, but more effort to attract technology firms is needed to retain the No 1 spot, analysts at PwC Hong Kong said.

In the 11 months through November 31, Hong Kong had 109 companies listed in the main board and the Growth Enterprise Market board, raising HK$178.21 billion, according to data from auditing firm PwC Hong Kong.

Shanghai ranks in the No 2 spot, as 81 companies raised US$12.21 billion, and the New York Stock Exchange trails closely behind with 32 listings that raised US$10.07 billion during the same period.

Eddie Wong, partner of capital markets services at PwC Hong Kong, expects Hong Kong’s fundraising to exceed HK$200 billion by the end of this year given there are two to three major offerings in the pipeline.

“Although it is 20 per cent less than the HK$260 billion raised last year, Hong Kong has performed very well as market sentiment this year was quite poor,” he said.

Postal Savings Bank of China ranks as the year’s biggest, raising HK$56.7 billion according to data from Wind Information. China Resources Pharmaceutical Group was runner up after it raised HK$13.67 billion in October, followed by China Zheshang Bank which raised HK$11.59 billion in March.

Benson Wong, entrepreneur group leader at PwC Hong Kong, said the Hong Kong looks set to hold its position in the top three global markets next year.

“A lot of financial companies need to enlarge their capital pool to support the increase of financial activities in China. Five financial firms postponed their listing plans to 2017. I believe the financial sector will continue to be the leader next year,” he said.

However, Wong said that a wave of upcoming technology IPOs in New York could be a swing factor in determining the leading market next year.

“Compared with other international financial markets, Hong Kong has seen fewer IPOs of technological firms,” he said.

Hong Kong’s listing requirements focus on company profitability, which is usually a weak spot for technology companies that tend to emphasise growth at an early stage of development.

Consequently only a few tech companies have opted to list in Hong Kong, Wong said, adding that the valuations were often low.

Eddie Wong said that it is worthy studying to launch a “third board” for companies that can’t meet profit requirements, an idea proposed by Hong Kong Exchanges and Clearing in its 2016-2018 plan.

Companies listing on this alternative board would likely be required to meet strict requirements on risk disclosure and face other restrictions such as a limit on eligible investors, Wong said.

Wong said caution among retail investors means that many IPOs next year will likely have an unusually high proportion of cornerstone investors, continuing the trend from this year.

Postal Savings Bank, for example, saw 75 per cent of its Hong Kong shares subscribed by cornerstone investors.

“We will continue to see lots of cornerstone investors next year, until the overall market sentiment improves and the interest of retail investors rises,” Wong said, “For IPO applicants, what they want most is to get listed smoothly.”