Huge number of Chinese tech unicorns likely to IPO in Hong Kong in 2018, says JPMorgan Asia-Pacific chief

Combined valuation of these companies could reach up to US$1 trillion, says co-head of company’s investment banking unit in Asia-Pacific

PUBLISHED : Monday, 07 May, 2018, 7:03am
UPDATED : Monday, 07 May, 2018, 7:03am

A huge number of Chinese technology unicorns are likely to launch initial public offerings in Hong Kong in the next 12 to 24 months, which could significantly boost liquidity in its capital market, according to Nicolas Aguzin, chairman and chief executive for Asia-Pacific at JPMorgan.

“2018 will be a blockbuster year for Chinese unicorns to come to the capital market,” Aguzin said in an interview with the South China Morning Post in Hong Kong. “Investors here [in Hong Kong] have strong appetite for these high-growth, new economy companies.”

John Hall, co-head of the company’s investment banking unit in Asia-Pacific and global head of technology services, said a wave of Chinese technology IPOs in the next 12 to 24 months is likely to set a record for Hong Kong.

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A number of Chinese technology companies have already started talking to investment banks and potential investors about the possibility of going public. If successful, these rapidly expanding Chinese technology stars could bring hundreds of billions worth of new shares into the market.

“I would say the combined valuation [of these companies] could reach up to US$1 trillion,” said Hall.

On Friday, Ping An Good Doctor, China’s largest online medical services platform, debuted on the Hong Kong stock exchange, after its US$1.12 billion IPO received a retail oversubscription of 653 times, the most for a main offering since 2009.

On Thursday, Xiaomi filed its application to go public in Hong Kong in what could be the world’s biggest flotation since Alibaba Group Holding’s US$25 billion debut in 2014.

Edmond Hui, chief executive at Bright Smart Securities, said the listings of Good Doctor and Xiaomi might be the catalyst for a potential wave of new economy IPOs, such as that of Ping An unit Lufax, an online wealth management platform, and Inke, a video streaming mobile app.

These companies are representative of China’s new economy and their flotations could ignite Hong Kong’s IPO market in the second quarter, he said.

In 2014, Alibaba went public in a record-setting US$25 billion IPO, which valued it at US$168 billion.

Four years on, a lot of Chinese technology companies have matured and scaled up, and are now reaching a point where their shareholders want to monetise.

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“I think this [the number and scale of unicorns seeking to tap the IPO market] is an unprecedented phenomenon in global capital markets. It is a historical event,” said Hall. These IPOs will bring “fundamental changes” to Hong Kong’s capital market, he said.

China has the world’s most dynamic technology start-up scene, thanks to the rapid rise of an internet economy supported by a high mobile penetration rate and mobile-first consumer habits.

The Hurun Research Institute recently released a list of start-ups in China, with 151 companies reaching unicorn status by the end of the first quarter. Their combined valuations exceeded 4 trillion yuan (US$630 billion). Half of these unicorns were incubated or backed by industry titans such as Alibaba and Tencent Holdings.

2018 will be a blockbuster year for Chinese unicorns to come to the capital market
Nicolas Aguzin, chairman and chief executive for Asia-Pacific, JPMorgan

“I think China is leading the global unicorn race ahead of the US,” said Aguzin. Some big Chinese companies have created an ecosystem for innovation, and are incubating some of the best technologies in the e-commerce, financial, health care, mobility and entertainment sectors, he said.

“We are in a world where the winner takes most. Being early is important, and being sizeable is critical.”

For companies in the technology and innovative sectors, if they can build a critical mass or user base fast enough, they will be able to generate a “network effect”, which is hard for others to replicate.

Ronald Wan, the chief executive at Partners Capital, said as a group of Chinese internet and technology companies have expanded and are now near the stage of going public, the competition to win over big Chinese “unicorn IPOs” has also intensified among global markets.

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That is probably why stock exchanges in Hong Kong, China, the United States and Singapore have made or considered rule changes to entice such companies, whose debuts are expected to bring significant changes to their capital markets, he added.