IPO market off to a slow start in 2022 but is set to rebound, KPMG analysis finds

Hong Kong introduces SPAC listing regime, adding vibrancy and diversity to fund raisings on the local bourse

SPAC listing regime, introduced, adding vibrancy and diversity to fund raisings on the ...

30 March 2022, Hong Kong – The Hong Kong IPO market has started quietly this year as geopolitical issues and economic uncertainties prevail globally amid supply chain bottlenecks and interest rate hikes. The escalation of the Omicron outbreak has also disrupted IPO and other fundraising activities on the local bourse. Activity is, however, expected to bounce back over the coming months with a strong IPO pipeline across different sectors. With the largest IPO in a decade debuting in the A-share market, the Shanghai Stock Exchange ranked top among the top five stock exchanges with USD17.3 billion in IPO proceeds recorded during 2022 Q1 YTD.

The analysis, from KPMG's Mainland China and Hong Kong IPO markets 2022 Q1 Review shows that, total funds raised globally was USD 52.2 billion during 2022 Q1 YTD, down 54% from the first quarter of 2021, but still managing to stay at a high level as it has over the past five years.

Paul Lau

Paul Lau, Partner, Head of Capital Markets and Professional Practice, KPMG China, says:

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The sentiment of the global market continues to be impacted by ongoing geopolitical issues and economic uncertainties, as well as monetary policy normalisation. Despite that, the increasing funding demand for business developments has resulted in strong pipelines in the major IPO markets. With continued growth of companies in the technology and biotech sectors, as well as companies involved in sustainable innovation, we are optimistic about global IPO activities as these uncertainties fade over time.

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A-share markets performed relatively well in the first quarter of the year. Although the market is recording fewer deals compared with same period last year, total funds raised reached RMB 181.4 billion, up 138% from the first quarter last year and marking a record high for the first quarter. This was attributed to the listing of a sizeable mobile network operator, which attracted RMB 56.0 billion, representing 31% of the total funds raised from A-share markets in 2022 Q1.

Benefiting from ongoing government support under the 14th Five-Year Plan, KPMG China expects healthcare/life sciences and advanced industrial companies to continue to grow and remain as a major impulse to the A-share IPO market. The A-share IPO pipeline is robust with active applications of over 750. The Shanghai and Shenzhen bourses are therefore expected to see a steady demand for fundraising activities.

The proposal for full implementation of a registration-based IPO system across boards was announced early this year. The mechanism features with market’s decisive role to set the price and focuses on quality of information disclosure. The deepened reform will further elevate the openness, vitality and competitiveness of the capital markets in mainland China, solidifying the market's current position among the top listing venues globally.

Louis Lau

Louis Lau, Partner, Capital Markets, KPMG China, says:

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With deepened capital market reforms providing enhanced diversity of the multi-level capital market, the A-share capital market is now better able to serve high-growth innovation-oriented companies, supporting China’s high-quality economic development.

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Amid the ongoing COVID-19 pandemic, geopolitical issues and economic uncertainties, the Hong Kong market recorded 15 deals during the first quarter. As conditions improve, KPMG expects momentum to pick up during the rest of the year.

KPMG China highlights that Hong Kong continues to be the natural choice for homecoming listings amid the uncertainty Chinese issuers are facing in the US market, with dual-primary listing showing an increasing trend. It is expected that homecoming listings and listings of healthcare / life sciences companies to be among the key drivers of the IPO market for the rest of 2022.

A total of 11 SPACs filed their listing applications in Hong Kong during 2022 Q1. The first SPAC listing took place on 18 March after the local SPAC regime came into effect in January 2022. KPMG China believes the SPAC regime will provide more comprehensive funding options and investment opportunities to both issuers and investors and that the regime could bring momentum to the Hong Kong market for 2022 and beyond through SPAC mergers.

Irene Chu

Irene Chu, Partner, Head of New Economy and Life Sciences, KPMG China, says:

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The launch of the SPAC regime underlines the bourse’s continued efforts to enhance the city's competitiveness as a fundraising hub. With the first SPAC listing and ample number of SPAC applications in the first quarter, we may be able to see the first batch of SPAC mergers completed towards the end of the year.

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Meanwhile, Hong Kong rule-makers are reviewing the listing rules and examining the revision of listing requirements for large-scale advanced technology companies that are currently not eligible, to keep pace with market demands and to help these companies meet funding needs.

“Easing the listing requirements, while keeping investor protection in balance, should make Hong Kong's capital markets increasingly attractive to high-growth and innovative companies from China and other regions. Not only would this support Hong Kong’s aspiration as an important hub for high-tech development in the Greater Bay Area, but also strengthen the city’s value proposition as a global leading IPO market,” said Paul Lau.

*Remarks: Analysis based on data as at 24 March 2022.


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