Hong Kong is expected to regain its position as the top destination for initial public offerings (IPOs) with estimated fundraising of around HKD300 billion (USD38.4 billion) in 2018. A strong IPO pipeline and continued interest from ‘new economy’ companies will allow Hong Kong to raise over HKD200 billion from 200 new listings in 2019, according to KPMG analysis.
The strong performance in 2018 is driven mainly by three mega-sized deals from the technology, media and telecom (TMT) sector, which altogether raised HKD135 billion. The influx of ‘new economy’ companies is set to boost the total number of new listings to hit record 208. In 2018, 36 IPOs came from the ‘new economy’ sector, accounting for more than a quarter of 133 IPOs recorded in the Main Board, KPMG analysis found. This compared to just 11 companies, or 15 percent, of the 80 Main Board listings in 2017.
“The new listing regime for companies from emerging and innovative sectors has successfully generated significant interest from ‘new economy’ companies globally and helpd transform Hong Kong into a hub for the ‘new economy’,” said Maggie Lee, Head of Capital Markets Development Group, Hong Kong, KPMG China.
Since its implementation on 30 April 2018, the new listing regime has attracted four pre-revenue biotech companies and two TMT companies with weighted voting right (WVR) structures to complete their IPOs; three of them ranked among the top 10 largest IPOs in Hong Kong in 2018.
“The new listing regime, as part of the wider effort to promote the development of the ‘new economy’ in Hong Kong, helps nurture an ecosystem for these companies. It also enables investors to learn about investing in emerging and innovative businesses, as well as their technologies, business models and strategies. Listing interest from ‘new economy’ companies is therefore set to remain strong,” Lee said.
Meanwhile, the A-share market in Mainland China sees slowing IPO activities amid a decline in listing approvals. KPMG forecasts that the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) will raise a combined RMB138 billion (USD20 billion) from 105 IPOs in 2018, compared to RMB230 billion from 436 listings a year earlier. Despite the slowing market, average deal size has more than doubled from RMB 0.53 billion to RMB 1.31 billion.
KPMG’s analysis also finds that the number of active applicants in the A-share market has further decreased from 511 at the beginning of the year to 270 as at 30 November, due to increasing applications withdrawals and reductions in new listing applications. This is a significant normalisation process for the development of an effective and efficient capital market.
Small and medium-sized companies from the industrials and TMT sectors are expected to make up a majority of the A-share IPOs. The upcoming establishment of a new high-tech board in Shanghai is set to further stimulate the market.
“The creation of a new high-tech board in Shanghai is expected to occur in 2019, and will likely garner notable interest from ‘new economy’ companies seeking to list in Mainland China,” said Louis Lau, Partner, Capital Markets Advisory Group, KPMG China. “The new board would allow for greater inclusion and support of high-tech and innovative companies, and provide a platform to experiment with a registration-based system for IPOs.”
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