Tech firms are finding Hong Kong as an IPO destination, but is it too late for the city to catch up?
The drop in IPO amounts may signal Hong Kong’s transformation into a more mature capital market that caters to needs of small to medium-sized firms with growth potential, analysts say
Hong Kong’s stock market has seen a flurry of fundraising this year by technology and internet companies, with five of the city’s 10 largest initial public offerings occupied by companies in the new economy, compared with none last year.
Most of these listings received overwhelming response from investors, who overbought the new shares by several hundred times the number of shares on offer.
Listings by bank and securities firms, traditionally the staples of Hong Kong’s capital market, have halved to 30 per cent of this year’s top IPOs, from 60 per cent last year, in line with regulators’ goal to draw more new economy firms to float.
Among the internet stars, ZhongAn Online P&C Insurance, China’s first online-only insurer backed by Alibaba affiliate Ant Financial Services Group, Tencent Holdings, and Ping An Insurance, was the first to shine. Hong Kong’s biggest fintech listing to date raised HK$11.9 billion (US$1.52 billion), and its shares have risen nearly 17 per cent since its September 28 debut, closing at HK$69.75 on Friday.
Alibaba owns the South China Morning Post.
“ZhongAn’s IPO has set off a wave of enthusiasm towards tech listings,” said Victor Au, chief operating officer for Delta Asia Securities.
“It sort of opened the gate for a tech IPO rush in the fourth quarter.”
ZhongAn’s halo effect as the first fintech IPO and its continued price increase since its debut had encouraged more companies and banks to promote their new share sales, and priced them at a higher level, said Cheng Ka-wa, director for RHB Securities Hong Kong.
China Literature was the internet star that burned the brightest. China’s largest online publishing and e-book site, a unit of Tencent, saw its new shares oversubscribed by 625 times and attracted more than HK$520 billion of investors’ capital, making it the hottest IPO since 2008.
On its first trading day on November 8, China Literature soared 86 per cent in value, the biggest debut-day surge among major IPOs this year. The stock closed at HK$89.90 on Friday, up 63 per cent from its IPO price of HK$55.
The two listings that followed – gaming device maker Razer and China’s largest online car retailer, Yixin Group, attracted an investor demand of 290 and 560 times respectively for the number of shares on offer.
Such response was a contrast to the 2016 climate, when half of the top 10 offerings – all of which were financial firms – did not receive enough subscription for their shares.
Although Razer and Yixin’s first-day increases of 18 per cent and 5 per cent respectively lagged China Literature’s 86 per cent debut surge, it was not a signal of the IPO market cooling off, said Alex Wong, director of asset management at Ample Financial Group.
“The investor sentiment may have been affected by recent hot tech IPOs, whereby shares surged initially amid enthusiasm, but then when the frenzy receded, the stock price pulled back and the trading turned more quiet.”
Wong said Hong Kong investors were relatively new to new economy listings and were learning as these listings came on stream.
Still, the public’s enthusiasm could be stoked if there are new “strong names” coming to list in Hong Kong, contingent on the individual company’s fundamentals and growth outlook, he added.
The tally so far in Hong Kong’s listings run is US$14.8 billion, making it fourth among global stock markets where companies come to raise capital, according to Dealogic. With a month to go before the year’s end and with no blockbuster sales in the pipeline, Hong Kong looks unlikely to match last year’s HK$195 billion raised, or catch up with Shanghai or the New York Stock Exchange on the top of the global IPO rankings.
Companies have raised US$32.3 billion so far on the New York bourse, followed by US$18.4 billion in Shanghai and US$15 billion on the Nasdaq.
If Hong Kong continues to fall behind by the end of next month, it will be the first time that Shanghai overtakes it in the annual IPO ranking.
“The heating up of Hong Kong’s IPO sentiments may attract more big names to consider listing in the city next year,” he said.
Investors could expect a continued rebound in IPO activities for 2018, especially with potential listings of China’s new economy companies in the technology, consumer, and health care sectors, Au said.
Tencent is considering a 2018 IPO for its music streaming service that could raise at least US$1 billion, which could take place in Hong Kong or New York, according to a previous report by Bloomberg.
Tencent’s Hong Kong-listed stocks have soared more than 120 per cent in 2017, with its market value exceeding US$500 billion to become the first Chinese tech firm to join a global elite club that includes US tech giants Apple, Alphabet, Amazon, Microsoft, and Facebook.
This year’s relatively weaker IPO market with fewer mega IPOs compared to 2016, analysts said, was a sign of Hong Kong’s transformation into a more mature capital market, which also caters to the financing needs of smaller companies with growth potential.
“Hong Kong’s IPO market has clearly diversified in its role not just as a preferred listing destination for blue-chips and large Chinese business or state-owned enterprises, but also a fundraising venue for potentially high-growth local and international small and medium [sized] enterprises,” said Edward Au, co-leader of the national public offering group for Deloitte China.
Deloitte expected Hong Kong to see a rise in the number of new listings, but a drop in the funds raised for 2017, according to its previous forecast at the end of September.
The number of new listings in Hong Kong has reached 131 so far this year, up from 99 during the same period in 2016, according to latest data compiled by Dealogic.