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The last year turned out to be one of the worst for the Hong Kong IPO market, but the region still managed to retain the third position in 2022 with new listings raising $12.69 bn, down over 70%. However, the tide is likely to turn in 2023 with the help of some of the most significant listing reforms in Hong Kong and a healthy pipeline of IPOs.
Global IPO markets took a hit in 2022 due to high volatility and a potential recession. But Hong Kong is likely to rebound as China updated its zero-Covid policy and has been actively trying to market the city as an offshore hub for Chinese stocks.
Outlook for Hong Kong IPO market
KPMG, PwC and Deloitte expect the Hong Kong IPO market to regain its lost glory in 2023 somewhat.
“In 2023, the CMSG (Deloitte China’s Capital Market Services Group) forecasts that Hong Kong will see 110 new listings raising approximately HKD230 billion, backed by various positive factors and developments including a slowdown in US interest rate hikes and anticipated reopening of the Hong Kong and Mainland boundary,” as per Deloitte.
“The proposed rules for Specialist Technology Companies will open the door for high growth innovative enterprises at early stages of development to list in Hong Kong and raise funds for further research and development,” as per Irene Chu, Partner Head of New Economy and Life Sciences, KPMG China.
KPMG’s Chu was referring to the plan to allow pre-revenue Big Tech companies to list on the Hong Kong Exchange and raise funds starting in 2023. The new listing regulations will allow pre-revenue tech firms to have a valuation of at least HK$15 bn (~$1.9 bn) to raise capital.
Separately, the valuation requirement will be cut to HK$8 bn if the companies have at least HK$250 m in revenue during the previous financial year.
The Specialist Technology Companies refer to five types of Big Tech firms — hi-tech firms operating in cloud computing, artificial intelligence, metaverse etc., new materials, new energy, new food and agriculture technologies.
“We have taken into account the unique features of these specialist technology companies,” Bonnie Chan, head of listing of HKEX, said in December.
In May 2022, the Hong Kong Exchange saw only one listing through the month, the lowest count in over a decade. But the situation improved during the second half of the year.
Additionally, the easing of zero-Covid, Beijing’s support to the real estate sector and muted regulatory scrutiny of the tech sector led to stocks in mainland China and Hong Kong seeing a jump in valuations. With China reopening its border earlier this month, higher economic activity will help the Hong Kong IPO market.
Deloitte sees more mainland companies listing their A shares in Hong Kong, whereas a jump in valuations will likely see more spin-off listings. “Regulatory reforms such as the introduction of RMB-denominated stock trading desks, inclusion of HK-listed overseas companies into the Southbound of Stock Connect, and FINI will help support the debuts of dual-currency IPO, overseas companies and specialist technology companies during the year as well,” adds Deloitte.
Meanwhile, the HKEX’s office in New York, which opened in December, may help the exchange woo potential clients. China is also trying to expand the Stock Connect schemes, which could further strengthen the city’s status as an international IPO market.
Lastly, while the US-China audit issue has taken a back seat for now as the regulators from the two countries reached an agreement, a deviation from this may help Hong Kong see listings of Chinese companies.
