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Video wall at HKEX Connect Hall at the Exchange Square in Central on 28 February 2018. Photo: SCMP/Xiaomei Chen

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

  • Equity capital market funds fell 66 per cent in the first quarter to US$6.98 billion, making this the quietest quarter since 2009
  • Bolstered by Lyft’s US$2.3 billion IPO last month, Nasdaq jumped to the top of the world’s fundraising ranking with US$4.4 billion raised, surpassing Hong Kong’s US$2.8 billion
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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.

The committee had already allowed the IPO applications by two of the world’s largest makers of bitcoin mining rigs – Bitmain Technologies and Canaan Creative – to lapse. The two companies sought to raise a combined US$3.4 billion in Hong Kong.

The fund raised from follow-on offering by listed company, including those from right issues, share placement and others, can only raise US$3.1 billion. This is down 81 per cent and is the lowest since 2008, Refinitiv data showed.

Total mergers and acquisition in Hong Kong in the first quarter also down 9.7 per cent year on year at US$22.8 billion, which is also the lowest since 2013, according to Refinitiv

“If the market remains volatile and the trade war drags on, the outlook for M&As would not improve,” said BDO’s Chan.

Can Hong Kong’s carrot and stick approach prove effective in improving stock market quality?

The HKEX, fresh from its three-year strategic plan in February, needs to rise to the challenge to catch up with Nasdaq if it wants to keep the global crown in fundraising. The bourse operator said it would double down on its role as the launching pad for China’s international fundraising, allowing more global investors to access Chinese stocks via the so-called Northbound capital in the Connect cross-border investment channels.

“This trend may continue in the rest of this year and hence would affect the total amount of fund raised,” said BDO’s Chan. “While it will be good for the HKEX to upgrade market quality, it, however, should take a balanced approach. If more listing hopefuls would prefer using bank loans or private equity investment to finance their business instead of listing at the HKEX, it will affect the role of the exchange as a fundraising hub in Asia,” Chan said.

This article appeared in the South China Morning Post print edition as: Fundraising on HK exchange slumps
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