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Hong Kong’s financial markets, considered the gateway into mainland China by investors, listed only one company in May, the lowest IPO count in May in over a decade. The development comes after Hong Kong reported that IPO volumes had plunged 90% to a nine-year low in 2022, largely driven by China’s economic slowdown and strict regulations.
In May, diagnostics services firm Yunkang Group Ltd raised $139 m, which is merely 10% of the funds raised in China whereas merely 3% when compared to issuances in India. Year to date, Asia’s top IPO destination has raised only $2.1 bn in proceeds compared to $20.7 bn seen during the same period last year.
Why are IPOs drying up?
Ernst & Young in a report said IPO activity in Hong Kong slowed in Q1 due to market volatility, a severe Covid-19 outbreak, and declines seen in the local stock market indices.
“There is, however, optimism of more IPO activity to come in the second half of the year. The IPO markets remain receptive to high-quality companies as governments and Central Banks continue to support economic growth and liquidity. Due to recent geopolitical and regulatory changes, IPO candidates are recommended to have a plan B in place to explore more ways to secure investors from different geographies,” said Ringo Choi, EY Asia-Pacific IPO Leader.
Meanwhile, KPMG says the focus is now shifting to homecoming listings as the US pressures Chinese firms to disclose key operational data. “As of 24 March, there were 30 healthcare/life sciences companies applying to list, including 12 pre-revenue biotech applicants, indicating steady market interest,” KPMG said in a report.
Over the past months, several IPO applicants have withdrawn papers or decided to delay public listings (most recently insurer FWD Group) as a weaker secondary market is weighing on investor appetite. Additionally, investment banks are likely to face revenue drops as their revenue largely depends on IPOs in Hong Kong.
“From the investors’ point of view as well, with the markets being unforgiving, any doubts about a listing candidate’s prospects will likely lead to them being more cautious,” said Sumeet Singh, Aequitas Research analyst who publishes on Smartkarma.
