Hong Kong’s IPO activities for the first half of 2014 reached a decade high in terms of number of newly listed companies, thanks to strong interest from investors and abundant liquidity in the capital market. Given the current market situation, PwC expects the city could remain as one of the top three global IPO markets in 2014.
The first half of the year saw 52 new listings in Hong Kong, with HK$81.2 billion of total fundraising. Compared to the first half of 2013, that’s a more-than-double increase in both companies listed and total fundraising, cementing Hong Kong’s reputation as an attractive listing destination.
The momentum from the last quarter of 2013 continued through to the first half of 2014, with strong economic fundamentals, which facilitated successful listings of companies. In addition, market participants are still adapting to new policies resulting from the resumption of the Chinese IPO market. As a result, some Chinese companies are switching to Hong Kong in order to reach out to global investors and funds.
PwC Hong Kong assurance partner Benson Wong says, “Fundraising activities in Hong Kong remain vibrant in the first half of 2014. At the same time, uncertainties in the global economy and geopolitical risks saw some adjustments in pricing. However, the total number of new listed companies and total size of fundraising are proof of the strong liquidity in the market liquidity. Investors’ interests in IPOs also remain strong.”
In the first half of 2014, retail and consumer goods contributed to the majority of new listings on the main board, followed by financial services, energy and mining-related, and IT-related companies.
PwC expects an estimated 110 IPOs with total fundraising of HK$180 billion in 2014, a revised forecast from HK$230 billion earlier this year, which took into account some expected large-scale IPOs in the first half. Nonetheless, Hong Kong is expected to remain as one of the top three destinations for fundraising globally.
Edmond Chan, PwC Hong Kong capital market services group partner, says, “A lot of companies are still interested, and are in fact, preparing for a Hong Kong listing. The majority of the listing candidates will be the SMEs. Traditionally, IPO activities are more active in the second half of the year. Given the stable growth in China’s economy with improving fundamentals, we expect to see more IPO activities, especially mega-sized IPOs. Retail and consumer goods, telecommunications and internet-related, industrial, and financial services are the industries that are expected to go for listings. There will be some IPOs with funds raised exceeding HK$10 billion in the second half.”
Looking at the mainland, since the resumption of IPO activities, 52 companies were listed in the Shanghai and Shenzhen stock markets in the first half of 2014, with 35.2 billion renminbi of total fundraising, coupled with relatively reasonable P/E ratio. PwC expects the Chinese IPO market will rebound in the second half of the year when financial reform deepens and market sentiment improves. We estimate 150 IPOs with total fundraising of between 1 to 1.500 trillion in 2014, which will be the same as the Hong Kong market in terms of fundraising.
Frank Lyn, PwC China and Hong Kong markets leader, says, “In view of the current situation, the Chinese market is not expected to have any mega-size fundraising activities in the short period of time. Also market participants are still adapting to the new listing rules. We believe the mainland IPO market will improve and keep pace with Hong Kong after the break-in period, coupled with the stable economic growth.”
The Chinese regulators earlier announced the pilot programme for the establishment of a mutual stock market access between mainland China and Hong Kong. PwC expects the “Shanghai-Hong Kong Stock Connect”, which will be launched in the fourth quarter, will provide a morale boost for the market. Under the programme, Mainland investors will be allowed to trade Hong Kong stocks and it could also attract more mainland companies to list in Hong Kong as H-shares.
PwC also welcomes the recent report released by the Financial Services Development Council (FSDC) about positioning Hong Kong as an international IPO centre. “Traditionally, Hong Kong’s capital market is constantly praised locally and globally. We have seen countless mega deals or global fundraising activities in the city over the years that showcase the strength of our fundraising platform. As an international fundraising hub, we must continuously improve ourselves and keep up with the times. Accordingly, any change of rules should take into consideration the latest international practice and industry developments. In addition, it should maintain the balance between the company’s operating efficiency and the shareholders’ participation and protection,” adds Chan.