Caixin
Jun 20, 2019 04:26 AM
FINANCE

HKEx Ranks 3rd in Global IPOs as Trade War Weighs on Sentiment

Hong Kong ranks third in global IPOs so far this year. Photo: VCG
Hong Kong ranks third in global IPOs so far this year. Photo: VCG

The Hong Kong stock market ranked third in global initial public offerings in the first half so far, losing its crown to New York. But analysts expect a potential listing of Alibaba Group to bring some excitement to the city.

Hong Kong Exchanges and Clearing embraced 76 new listing as of June 19, a drop from last year’s 101 offerings at that point. But thanks to big deals including brokerage firm Shenwan Hongyuan’s $1.16 billion offering in April, total fundraising of IPOs in the city rose 38% year-on-year to HK$69.5 billion yuan ($8.9 billion), the highest for the same period since 2015, accounting firm Deloitte said Wednesday.

Hong Kong has been the top IPO market several times in the past decade. It ranked first in global IPOs in 2015, 2016 and 2018. The market lagged behind the New York Stock Exchange (NYSE) and Nasdaq in attracting new listings this year partly reflecting dampened investor sentiment because of uncertainties of the China-U.S. trade war.

The NYSE topped global IPO markets so far this year with about $18 billion in proceeds from 17 deals, boosted by the $8.1 billion listing of Uber in May. Nasdaq ranked second with $12.5 billion of offerings from 70 companies including Uber’s biggest rival, Lyft. The Shanghai Stock Exchange came fourth after the HKEx with listings of nearly $5 billion, followed by the London Stock Exchange, according to Deloitte.

Deloitte projected that a total of 200 IPOs will be completed in the Hong Kong market this year, with combined fundraising between HK$180 billion and HK$250 billion.

New York-listed e-commerce giant Alibaba is reportedly planning a second listing in Hong Kong. If completed, the deal would give a major boost to the Hong Kong market as the offering size may exceed $10 billion, said Edward Au, co-leader of Deloitte China’s National Public Offering Group.

Hong Kong lost Alibaba’s record $25 billion IPO to New York in 2014 because of its restrictions on dual-class shareholding structures. The HKEx made major listing revisions in April 2018 to open its door for dual-class structures and pre-revenue biotechnology companies.

Such changes have attracted new IPOs, and a second listing of Alibaba in Hong Kong will make Hong Kong a more attractive destination for other tech firms, Au said.

The Hong Kong market has been hit with greater volatility and lukewarm investor sentiment amid the Sino-U.S. trade war and Brexit. The average return on the first day of new-share trading in Hong Kong slid to 7.08% from 21.05% last year, according to Deloitte, which also found that fewer offerings have been oversubscribed this year.

Mainland companies contributed 60% of the new IPO deals in Hong Kong during the first half so far, up from 30% last year. They accounted for 92% of the total fundraising in Hong Kong this year, Deloitte said.

Au said he is positive on the Hong Kong market’s performance the rest of this year, citing potential mega deals by mainland-based financial institutions and global tech and consumer goods giants.  

Dick Kay, another co-leader of the National Public Offering Group, said trade frictions may drive some U.S.-listed Chinese companies to consider a Hong Kong listing. Meanwhile, the expansion of full convertibility, which allows mainland companies listed in Hong Kong to freely convert their nonlisted shares into H-shares, will attract more mainland businesses and investors to the city’s market, Kay said.

The mainland markets in Shanghai and Shenzhen have been hit harder by concerns over the trade war and slowing economic growth. Total IPO value on the mainland during the first half so far dropped to 60.4 billion yuan ($8.7 billion) from last year’s 93.1 billion yuan.

Tech-related listings declined significantly to 9 billion yuan from 36.5 billion yuan last year on the mainland markets. Kay said the drop is partly because many tech companies put their listing plans on hold to await the launch of the new high-tech board in Shanghai, which tests a series of listing reforms and is expected to start trading soon.

Contact reporter Han Wei (weihan@caixin.com)


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