(Yicai Global) July 5 -- The Hong Kong bourse could cement its position as a leading initial public offering market globally this year as new economy companies from China's mainland home in on the special administrative region for listings.
New economy firms have swarmed into Hong Kong accounting for all of the bourse's five biggest IPOs in the first half of this year, a report from Deloitte has found. Ping An Health, China's largest online medical platform, led the way, raking in HKD8.8 billion (USD1.1 billion).
The momentum is set to continue in the second half with at least five new stocks expected to raise more than HKD10 billion each and more 10 unicorns could go public. The listings of Xiaomi and Meituan-Dianping are imminent while there are persistent rumors surrounding possible IPOs at China's largest fintech firms Ant Financial and Lufax.
Choosing H-Shares Over A-Shares
China mainland regulators have tightened reviews of IPO applications for the A-share market making it harder for firms to follow their listing schedules, PriceWaterhouseCooper Partner Huang Weibang said. This has led to a raft of firms choosing Hong Kong instead where they are less likely to face such problems.
Enterprises choosing to go public in Hong Kong may have to give up higher pricing and valuations, as the A-share market remains more lucrative in this respect, he added.
Adopted in April, Hong Kong's new IPO regulations allowing new economy companies to list dual-class shares have boosted H-share floatations, said Eddie Wong, a partner in charge of the Hong Kong capital market at PWC. The scale of IPOs in Hong Kong has increased significantly so far this year though market sentiment could be impacted by external factors. Wong nevertheless maintains that the strong listings momentum will continue.
The number of new IPO stocks increased by around half compared to last year in the first six months, Wong said, adding that HKEX is currently processing as many as 200 listing applications. The several listings exceeding HKD10 billion in the second half will help cement Hong Kong's position as a leading IPO market worldwide.
Wong estimates that some 220 enterprises will go public in Hong Kong this year with yearly financing to reach HKD200-250 billion, marking a record for the bourse and helping it to regain the top position for IPOs worldwide.
Market Risks Remain Unchanged
The recently downward trending Hang Seng Index remains a risk for the local IPO market. The HKEX benchmark has fallen 15 percent overall to around 28,000 points from 33,000 points at the turn of the year. Even though many new stocks maintained their issue price on the day of their listing, it is still hard for them to steer clear of the overall decline.
If such market sentiment continues, it will definitely influence Hong Kong's IPO trend in the second half of the year, Wong admits, adding that enterprises could become more conservative with their IPO pricing.
After these companies have made a splash during their listing, the relatively cold response in Hong Kong's secondary market represents a warning of the primary market's dangers. Insiders told Yicai Global, most -economy companies listing last year have seen their stock prices drop below their issue prices.
Institutional investors make up some 85 percent of the Hong Kong market, the insiders said, adding that although they will not oppose high valuations, new economy firms must achieve satisfactory performance in return, otherwise the market will not allow a valuation higher than the embedded value to continue in the long-term.
Editor: William Clegg