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Hong Kong’s IPO market showed a rather dismal performance in 2023. According to the S&P Global Market Intelligence data, companies raised $5.9 bn through IPOs, indicating a 29% year-on-year decline. The data revealed that the number of deals dropped to 67 from 72 compared to the previous year, and almost half of the activity was concentrated only in the fourth quarter of last year.
According to Robert Lui, Southern Region Hong Kong Offering Services leader of the Deloitte China Capital Market Services Group (CMSG), reasoned, “Continuous US interest rate hikes and a slower-than-expected Chinese economic recovery sent market valuations down and constrained liquidity. As a result, Hong Kong did not have any mega IPOs in 2023.”
Better regulatory regime and new listing rules to boost IPOs
Nevertheless, market observers believe things are poised for a gradual turnaround in 2024. Irene Chu, Partner, Head of New Economy and Life Sciences, Hong Kong, KPMG China, states, “2023 marked a slow year for the Hong Kong IPO markets, as both corporates and investors exhibited caution amidst global market uncertainties. Despite the prevailing subdued market sentiments, the fundamentals of Hong Kong’s capital market remain robust and resilient.”
As per KPMG China, Hong Kong would record 90 IPOs in 2024, raising HKD100 bn ($12.8 bn) due to increased cross-border listings with the Middle East and spin-off listing opportunities. The consulting firm opines that upbeat sentiment among investors in artificial intelligence or AI, semiconductor, and green technology could spur more deals in these sectors.
Several reforms made in recent years, including the listing rules for special purpose acquisition companies (SPAC) and specialist technology companies, can also catalyse more Hong Kong IPO listings. Moreover, programs such as the Hong Kong Stock Connect can be instrumental in enhancing the stock market’s liquidity and attracting more foreign capital.
The new Chapter 18C listing regime can enable specialist technology companies to connect with international funds, thus boosting the long-term development of the technology industry and bringing more funds to Hong Kong.
Jacky Lai, EY Hong Kong Capital Market Service Spokesman, said that the regulatory improvements on listing rules have been put in place to adapt to the dynamic environment. “Specialized technology companies such as those in industries like artificial intelligence and smart driving can benefit tremendously from the new listing rules. The Growth Enterprise Market (GEM) reform aims to vitalise the market. The introduction of a new streamlined switching mechanism will facilitate companies interested in listing on GEM earlier.”
Furthermore, the slow pace of IPOs in mainland China could benefit the Hong Kong IPO market in the long term. In August 2023, the China Securities Regulatory Commission (CSRC) announced that it would “tighten” the pace of IPOs to prevent the dilution of smaller shareholders and boost investor confidence in the mainland.
On that note, Ringo Choi, EY Asia-Pacific IPO Leader, believes, “With the tightening of A-share IPO policies phasing in, companies planning to go public should re-examine their short to medium-term development, be on the lookout for opportunities for mergers and acquisitions, and also seek overseas listing opportunities in a timely manner. Consequentially more companies are expected to change their listing venue to Hong Kong.”
FINI to be a game-changer for Hong Kong IPOs?
In November 2023, Hong Kong Exchanges and Clearing (HKEX) launched the new digital IPO settlement platform FINI to revolutionise the Hong Kong IPO settlement process. One of the significant aims of FINI is to facilitate faster IPO settlements and enhance operational efficiency. Therefore, it reduces the time between the pricing of an IPO and the share trading from five business days to two business days. Not only this, HKEX is also planning to add a new pre-funding model in FINI to lower the amount of funds stuck in over-subscriptions.
The lack of stability in the Hong Kong stock market since the past year is majorly due to China’s deteriorating economic performance. Hong Kong’s Hang Seng index primarily comprises China mainland companies. The worsening situation, especially the housing sector woes, has spurred ongoing worries about a possible spillover impact on the Hong Kong economy. According to the World Federation of Exchanges, Hong Kong even lost its position as the world’s seventh-largest stock exchange to India because of declining market capitalisation.
Peter Chan, EY Hong Kong TMT Assurance Leader, cautioned, “Hong Kong’s capital market still faces multiple challenges in 2024, and the recovery of IPO activity relies on the recovery of the capital market and the restoration of market capitalisation.”
