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Treasury & Capital Markets
Hong Kong expects reforms to revive IPO market
Capital outflow presents opportunities for other Asian listing venues
Yuki Li 24 Nov 2023

Initial public offerings have seen a decline globally in 2023, with fundraising amounting to US$119.2 billion, down by 12% in volume and 35% in proceeds compared to the previous year.

China’s A-share market accounted for over 40% of the total funds raised as of November 17, EY says in its report, Review of Global IPO Market in 2023. The market is expected to raise more than 350 billion yuan (US$48.92 billion) from over 300 IPOs by the end of this year, down by 41% from a year ago. Nonetheless, it still leads the global IPO market.

China’s IPO market this year has been driven primarily by the TMT (technology, media and telecommunications) sector, with ChiNext and STAR staying at the top by the number of deals and proceeds, respectively. On the other hand, IPOs by biotech and healthcare companies have experienced a downturn, lingering at low levels not seen in the past five years.

Four out of the ten largest global IPO deals this year are from mainland China, and three of them are from semiconductor companies. These include Hua Hong Semiconductor Ltd, which listed in August, raising US$2.95 billion, and Semiconductor Manufacturing Electronics (ShaoXing) Corporation and Nextchip Semiconductor Corp, which listed in May, raising US$1.6 billion and US$1.44 billion, respectively.

Hong Kong market

Hong Kong, once the global leader in IPO activities, having raised the most funds from IPOs in 2018 and 2019, has experienced a year-on-year decline in deals value, from HK$400 billion (US$51.33 billion) in 2020 to HK$41.3 billion (US$5.3 billion) in 2023, according to the EY report. This constitutes an almost ten-fold contraction and its lowest level in the last 20 years.

Mainland Chinese companies continued to dominate the Hong Kong IPO market in 2023, with proceeds from these companies accounting for 98% of the total. The TMT sector ranked first by the number of deals (16), followed by biotech and healthcare listings (12) which rank first by proceeds, accounting for a quarter of the total funds raised in the Hong Kong IPO market this year.

The sluggish IPO activities in Hong Kong can be attributed to the aggressive rate hikes by major central banks, which have reduced investor interest in the stock market. Also, the absence of large companies listing in the city has contributed to the poor performance, as none of the top 10 IPOs globally is from Hong Kong.

Hong Kong is making efforts to revive the local IPO market. For instance, the city is attracting mainland companies that have applied to list in A-share market but are still under review, to go public in the city. This is supported by policies like Chapters 18A and 18C of the Hong Kong Exchanges and Clearing (HKEX) listing rules, which relax criteria for biotech companies and specialized companies.

HKEX also aims to attract high-growth enterprises that are heavily engaged in R&D activities through a reform of its GEM platform, the city’s bourse operator says in the latest consultation paper it released on September 26.

This reform will introduce a new streamlined transfer mechanism that will enable qualified GEM issuers to transfer to the Main Board without having to appoint a sponsor for due diligence or produce a “prospectus-standard” listing document, law firm Mayer Brown says. It will also remove the mandatory quarterly reporting requirements and align other ongoing obligations with those of the Main Board. This measure is expected to encourage smaller companies to list in Hong Kong.

Digital IPO platform

On November 22, HKEX launched a new digital IPO platform, FINI (Fast Interface for New Issuance). It reduces the IPO settlement period from T+5 to T+2 and modernizes the IPO settlement process. This will shorten the time gap between IPO pricing and trading, giving investors quicker access to new listings, reducing market risk, and improving efficiency for all parties involved, the stock exchange says.

“We are in a transition period, given rising concerns from capital from Europe and US investors, so a bunch of capital outflow from Hong Kong or China-related market has hit the Hong Kong IPO market,” says EY Asia-Pacific IPO leader Ringo Choi. “It takes time to wait for opportunities like interest rate policy or foreign exchange rate changes, which might drive the Hong Kong IPO market growth.”

Meanwhile, India has become the biggest beneficiary of the capital outflow from Hong Kong and mainland China to other Asian markets. It recorded the largest number of IPO deals (209) this year, just slightly lower than the total number of deals on the Shanghai and Shenzhen stock exchanges (225). Other Asian markets have also shown remarkable performance, with Indonesia and Japan among the top 10 IPO venues in terms of deal number and proceeds globally in 2023.

“We expect a pickup in the Hong Kong IPO market in 2024, with total proceeds of HK$50 billion,” says Choi. This is slightly higher than the 2023 figure, driven by expectations of a stabilizing capital market.

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