A lot more companies will be hitting the famous gong in 2021 to mark the debut of their shares on the Hong Kong stock exchange, analysts predict. Photo: Reuters
A lot more companies will be hitting the famous gong in 2021 to mark the debut of their shares on the Hong Kong stock exchange, analysts predict. Photo: Reuters

IPO

Secondary flotations of US-listed Chinese firms buoy 2021 outlook as Hong Kong lands second place in world IPO rankings

  • Hong Kong stock exchange will finish 2020 as the second-biggest IPO market globally after raising US$50 billion, KPMG says
  • Secondary listings, Chinese issuers’ hunger for capital, loose monetary policy to brighten IPO outlook in 2021, bankers say

Topic |   IPO
A lot more companies will be hitting the famous gong in 2021 to mark the debut of their shares on the Hong Kong stock exchange, analysts predict. Photo: Reuters
A lot more companies will be hitting the famous gong in 2021 to mark the debut of their shares on the Hong Kong stock exchange, analysts predict. Photo: Reuters

Fundraising soared 24 per cent to a 10-year high on Hong Kong’s stock exchange in 2020, as a record surge of secondary listings by US-listed Chinese companies pushed the city to second place behind New York in the global ranking of destinations for initial public offerings (IPOs).

As many as 140 companies raised a combined US$50 billion in Hong Kong this year, according to data compiled by KPMG, including confirmed listings up until December 31. Nasdaq tops the rankings with 175 companies including Airbnb raising a combined US$52.3 billion, based on Refinitiv’s data.

Hong Kong’s IPO market had been the biggest beneficiary of the ongoing deterioration in
US-China relations
, which has driven Chinese companies like NetEase and JD.com to raise additional capital closer to home, as the US Congress enacts a law to expel Chinese companies from Wall Street for failing to accede to American accounting oversight. The backflow will only increase in 2021, as Joe Biden’s incoming administration is unlikely to reverse the trend, while record-low interest rates drive global investors to search for higher returns from IPOs.
“The group of Chinese issuers [with] listing and fundraising demand is still there,” said Levin Wang Lei, chief executive of Huatai Financial Holdings, whose parent Huatai International acted as a bookrunner for the IPOs of
Evergrande Property Services
and biotech firm Remegen. “So long as the current low interest rates environment and the ample liquidity in the market stay, the IPO market in Hong Kong will remain active in 2021.”
A string of mega IPOs by Chinese technology companies, likely to raise at least US$1 billion each, wait in the wings. These include ByteDance, the operator of TikTok and Douyin, and its competitor
Kuaishou
. Baidu’s video streaming platform iQiyi, dubbed China’s Netflix, is likely to plan a secondary listing in Hong Kong. Video-sharing platform Bilibili is reportedly targeting US$1.5 billion while car sales website Autohome could target US$1 billion.
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Between 130 and 150 IPOs may take place in Hong Kong next year, raising between HK$350 billion and HK$400 billion (US$51.6 billion), according to KPMG’s forecast.

“Hong Kong’s IPO performance in 2021 could be comparable to, if not higher than this year,” said Louis Lau, a partner at KPMG China’s capital markets advisory group. “Our forecast takes into consideration that there will be more US secondary listings, although most of the sizeable deals have already listed over the past two year.”

Since the trailblazing US$12.9 billion secondary listing of Alibaba, which owns the Post, in November 2019, other US-listed Chinese tech giants such as e-commerce group JD.com, internet giant NetEase have followed suit.

These massive tech groups, which had previously skipped Hong Kong, have returned to raise more funds now that the city’s stock exchange has introduced a slew of listing reforms such as
weighted voting rights
.

Accelerating this trend is a wave of US legislation targeted at limiting Chinese firms’ access to US capital markets.

Traders work the floor of the New York Stock Exchange during the IPO of Chinese cosmetics company Yatsen Holding Ltd on November 19. Photo: NYSE via AP
Traders work the floor of the New York Stock Exchange during the IPO of Chinese cosmetics company Yatsen Holding Ltd on November 19. Photo: NYSE via AP
Earlier this month, the US House of Representative passed legislation aimed at delisting Chinese companies from American exchanges for failing to comply with auditing oversight rules for three straight years. The bill, called the
Holding Foreign Companies Accountable Act
, is pending being signed into law by President Donald Trump, whose term ends in January.
Deal arrangers expect regulators in both the US and China to reach some form of compromise, such as on cross-border enforcement cooperation and information disclosure. Still, given
regulatory uncertainties
Chinese companies will continue to hedge their bets via another listing closer-to-home.

These deals, though likely to be smaller than those already listed this year, could outnumber them. Year-to-date, a dozen secondary listings have sold shares worth more than a third of the total funds raised in the city, data from Refinitiv shows.

Analysts believe there are over 20 US-listed companies that could satisfy the existing secondary listing requirements of having at least HK$10 billion in market capitalisation and HK$1 billion in revenue.

Leading players in the consumer, financial services, health care and biotech sectors will also seek to launch deals next year, bankers say.

Potential IPO candidates include
JD Logistics
, FWD, an Asian insurer backed by billionaire Richard Li, which is reportedly looking to raise US$3 billion, and Chinese beverage maker Wahaha, targeting US$1 billion.

Competition for the listings business between Hong Kong, Shanghai and Shenzhen stock exchanges will continue, bankers say.

The foiled US$34.5 billion dual listing this year of Ant Group in Hong Kong and Shanghai has provided key lessons for others mulling a similar move, they say.

Chinese companies already listed in Hong Kong will also seek
dual listings on ChiNext
, the board for start-ups operated by the Shenzhen Stock Exchange. In June the ChiNext started implementing reforms, which enabled faster IPO vetting and raised its competitiveness.

“The A-share market has deepened its capital market reforms, and this will assist companies from different sectors to meet their funding [targets],” said Lau.

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Georgina Lee

Georgina Lee

Georgina Lee has been a financial journalist for more than 15 years, having worked for newswires and trade magazines before she joined the Post. She has also previously written research articles on key structured credit themes for a credit rating agency.