Hong Kong’s stock exchange posts its quietest first quarter since 2009 as blockbuster IPOs looked elsewhere to raise funds

Hong Kong’s stock exchange had the quietest first quarter in a decade, as its fundraising tally suffered from a dearth of blockbuster listings, while the US-China trade war deterred acquisitions and an increasingly stringent approvals process discouraged companies from raising fresh capital.

Total equity capital market funds fell 66 per cent in the first three months to US$6.98 billion compared with last year, according to Refinitiv’s data, the worst quarter since 2009 when the market was roiled by the Global Financial Crisis. The total amount raised in initial public offerings (IPOs) on Hong Kong’s main board and the Growth Enterprise Market (GEM) fell 11.6 per cent to US$2.8 billion.

“The IPO market was quiet in the first quarter as the HKEX tightened its approval of new listings,” said Clement Chan Kam-wing, managing director of BDO, the city’s fifth-largest accounting firm. “It raised more critical questions on the purpose of fundraising while rejecting more applications. This forced many [applicants] to delay their listing plans or opt for other methods to raise capital.”

The first quarter was a bad start to 2019 for Hong Kong Exchanges and Clearings Limited (HKEX), the operator of Asia’s third-largest equity market, as the US$2.3 billion IPO in March by the ride-sharing service Lyft raised Nasdaq’s fundraising tally to US$4.4 billion, surpassing Hong Kong. Shanghai was in third place with US$1.6 billion raised, while the New York Stock Exchange (NYSE) was in fourth place with US$1 billion.

The Listing Committee of the city’s stock exchange, working in a new structure following a 2018 overhaul of Hong Kong’s fundraising regulations, has become more stringent in vetting IPO applications. It rejected 24 listing applications last year, more than sevenfold increase compared with the three in 2017.

“There was a notable increase in the number of applicants rejected in 2018 as part of the listing application process, [due] in large part to the heightened scrutiny applied by the exchange following the publication of the revised Guidance Letter on suitability in April 2018,” said David Graham, HKEX’s Head of Listing in a statement last month.