Hong Kong well positioned for rebound in IPO activities amidst strong pipeline

Hong Kong market has a solid IPO pipeline with more than 170 applicants. A-share market accounted for almost half of global IPO funds in 2022 H1.

Hong Kong market has a solid IPO pipeline with more than 170 applicants...

28 June 2022, Hong Kong – Geopolitical and economic uncertainties continue to taint global IPO market sentiment, resulting in a notable decrease in fund-raising activities during the first half of this year from the same period in 2021. IPO proceeds in the US, Europe and Hong Kong plummeted by over 90% over the first six months of the year. Supported by sizable listings in the first half of 2022, the A-share IPO market outperformed the rest of the world: fund raisings in mainland China accounted for close to half of the global IPO proceeds during the period, according  to KPMG China’s mid-year review of the Mainland and Hong Kong IPO markets.

Paul Lau

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

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The global IPO market will continue to be influenced by economic and geopolitical uncertainties in the near term. Nevertheless, strong pipelines in the major IPO markets indicate that there remains strong demand for fund raisings. We expect more sizable deals getting done over the coming months as sentiment improves.

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Countering the global trend, the A-share markets raised more funds in 2022 H1 from a year earlier, attributable to a number of sizeable listings. The Shanghai Stock Exchange and the Shenzhen Stock Exchange raised a total of US$46.3 billion, representing more than 48% of the global IPO proceeds as of 23 June 2022.

While uncertainties continue to impact the global economic environment, China’s State Council has rolled out detailed policy measures to control the COVID-19 pandemic while continuing to promote high quality economic development. These measures are expected to aid the country in achieving sustained growth of the domestic economy, creating a favourable environment for fund-raising in A-share markets.

Louis Lau

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

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With the country’s effective control of the pandemic, combined with fiscal and monetary measures to support growth, the economy in mainland China is expected to gradually improve over the rest of year, creating a favourable environment for fundraising. The registration-based IPO system is expected to be adopted throughout A-share markets this year, further stimulating IPO activities in mainland China’s capital market.

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The A-Share IPO pipeline remained robust with about 856 applicants. This is mainly attributable to the number of applicants in the STAR Market and the ChiNext board, indicating solid confidence and market recognition. In terms of sectors, Technology, Media and Telecommunications (TMT) and industrial manufacturing comprised 71% of the pipeline and they are expected to remain the key drivers of IPOs on A-share markets.

In line with the global market sentiment, Hong Kong’s IPO activities have slowed recording a 92% year-on-year decrease during the first six months of the year in terms of total proceeds raised. So far 24 deals have been completed, bringing in HKD 17.8 billion.

Despite that, Hong Kong continues to be the natural choice for homecoming listings because of the city’s geographical proximity and its capital flow mechanisms with mainland China, underpinned by the current uncertainties Chinese issuers are facing in the US market. Homecoming listings are expected to continue to lift the city’s fund raising and capital market in the second half of the year.

The SPAC regime in Hong Kong has had a steady start to this year with 13 listing applications being filed and two having listed. The SPAC regime is expected to bring renewed momentum to the Hong Kong market this year and beyond, attracting more New Economy companies, including new energy, healthcare, biotechnology and green finance firms on the local exchange.

Global geopolitical, economic uncertainties and the ongoing pandemic, however, will continue to sully sentiment for the rest of the year in Hong Kong, the report said. Momentum is expected to pick up gradually as these uncertainties fade out, fuelled by the solid IPO pipeline as more than 170 applicants continue to wait to list on the city’s bourse.

Irene Chu

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

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Despite the challenging funding environment and global market uncertainties, businesses across different sectors continue to pursue major digital transformation and decarbonisation initiatives. Such demands are creating opportunities for companies involved in digital and sustainable/renewable technologies which would be attractive to strategic and corporate investors.

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In order to encourage the listing of large-scale specialist technology companies, authorities in Hong Kong are now reviewing the listing rules and considering whether to revise the listing requirements. More details on this matter are expected to be announced during the second half of the year.

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