Listing activity: Healthy pipeline of IPO-ready companies spurs talk of records
First quarter of 2017 saw 130 deals on the mainland, which raised 67.6 billion yuan; a 480 per cent increase in funds raised on the same period in 2016
If planned initial public offerings, or IPOs, are a bellwether of economic health, China’s prospects in the rest of 2017 look pretty rosy.
In terms of listing activity, the year is off to an encouraging start and there is even talk of record territory in terms of deals done and funds raised.
“There is a healthy pipeline of IPO-ready companies ready to list – more than 130 in Hong Kong and more than 650 on the mainland exchanges,” says Ringo Choi, Asia-Pacific IPO leader for EY. “Greater China is expected to remain one of the most active markets into the second quarter and second half.”
Choi notes the first three months of 2017 saw 130 deals on the mainland, which raised 67.6 billion (HK$76.26 billion) yuan; a 480 per cent increase in funds raised on the same period in 2016. With investor interest in
A-share IPOs strong, the first-day trading returns for these listings reached the maximum permitted 44 per cent increase.
The China Securities Regulatory Commission has signalled its intention to continue accelerating the pace of new listings. This is all part of an effort to improve capital market allocation and better serve the needs of the real economy.
In Hong Kong, where stock indices have been trending higher since January, the recovery in investor sentiment saw 36 IPOs raise HK$12.3 billion in the first quarter - a near doubling of the number of deals compared to the same period last year. While the total raised fell 59 per cent year-on-year, that is no great cause for concern when seen in context.
“Investor appetite for Hong Kong IPOs will remain keen as almost half of new listings priced in the upper range, and all on the main board, were oversubscribed as of March 29,” Choi says. “Investors are showing renewed enthusiasm for smaller offerings, with over half of local IPOs in the first quarter [floated] on the Growth Enterprise Market.”
He says regulators in Hong Kong and the mainland are expected to discuss more market-oriented rules to attract more listings by competitive and competently-run enterprises.
“The CSRC is looking to reduce government intervention in share sales to allow the market to play a bigger role,” Choi says. “And efforts are being made in Hong Kong to launch a third board, with more relaxed regulations, to attract IPOs from the technology sector.”
Louis Lau, a partner with KPMG China’s capital markets advisory group, sees the mainland’s accelerated IPO approval process as evidence of a more streamlined, market-based approach.
“The approved IPO cases are now released on a weekly basis, as opposed to twice a month,” Lau says. “This has been fuelled by the increasing number of companies traded on the National Equities Exchange and Quotations [NEEQ] now applying for an IPO.”
He says 101 NEEQ companies completed registrations for pre-IPO “tutoring” in the first quarter, up from 63 in the final three months of last year. There have been efforts to raise the bar for approvals, with a greater focus on the quality of companies looking to the A-share market. This puts more emphasis on business fundamentals and maintaining reasonable valuation in the long run.
“All these developments are moving China’s multitiered capital markets in a positive direction,” Lau says. “And debt-to-equity swap programmes have been introduced to lower the leverage ratio of China’s economy, which also favours the growth of the IPO market.”