Can Hong Kong re-emerge as the world's top IPO destination - a crown it has won seven times in the last 14 years - in 2023?
Funds raised by initial public offerings plunged 68 percent to a 10-year low of HK$104.6 billion last year amid China's regulatory crackdown, the Covid pandemic and geopolitical strife, but the city retained its spot as the third best listing hub as global IPO proceeds plunged more than 70 percent over 2021.
And while the 2023 IPO race has just begun, most analysts see Hong Kong staying in the top three spots and raising up to HK$230 billion in 2023 on the back of hotly anticipated listings such as JD.com's (9618) spin-offs, Arc'teryx's owner Amer Sports and insurer FWD, each of which could each raise more than US$1 billion (HK$7.8 billion).
However, this would still be far off the HK$330 billion raised in 2021 and even further from the HK$400 billion raised in 2020 - when Hong Kong came second after taking the top IPO slot in 2019 with HK$312 billion.
Meanwhile, a move by Hong Kong Exchanges and Clearing (0388) to welcome pre-revenue specialist technology firms and a revival of yuan-denominated IPOs once yuan-denominated stock trading kicks off could also spur momentum.
Philip Securities director of asset management Louis Wong Wai-kit believes many firms which delayed their Hong Kong IPOs will be back this year, amid expectations of slower and lower rate hikes by the US Federal Reserve and hopes for an economic recovery in China.
FWD, the Asian insurer backed by billionaire Richard Li Tzar-kai is considering a long-awaited debut that could raise about US$1 billion as soon as the first quarter while JD's logistics property and industrial e-commerce units could list this year, with each of them expected to raise US$1 billion.
Meanwhile, Amer Sports, the Wilson tennis racket maker that counts China's Anta Sports Products (2020) among its investors, could also see at least a US$1 billion IPO this year.
Other major candidates include Guizhou Guotai Liquor Group, a Chinese white liquor brand which is looking to raise more than US$500 million, seed and fertilizer giant Syngenta and Didi Global.
HKEX says it has 100 firms waiting to go public while the government is stepping up a drive to attract more foreign listings including Saudi oil giant Aramco to the city.
NEW INITIATIVES
On the policy front, a new listing regime for specialist technology firms is expected to be launched in the first quarter.
It will allow pre-revenue tech firms with a valuation of at least HK$15 billion and pre-profit ones with a valuation of HK$8 billion to list in the city.
This will be the biggest reform of its kind since 2018 when HKEX allowed tech firms with weighted voting rights and pre-revenue biotech start-ups to list in the city.
The new rules will apply to five sectors: next-generation information technology such as cloud computing and artificial intelligence, advanced hardware like semiconductors and self-driving vehicles, new materials, new energy, and new food and agriculture technologies.
The new rules could boost the market though there may be only up to five such listings this year, raising about HK$200 million to HK$300 million, says Deloitte China southern region managing partner Edward Au Chun-hing.
It depends on how the final rules shape out and companies may adopt a wait-and-see attitude in the first year of its launch, says Au, adding that the market is also hoping that HKEX will lower the valuation threshold as not many tech firms can meet the criteria.
GREATER ROLE FOR YUAN
Meanwhile, the revival of yuan-denominated IPOs this year could also boost the market, Au notes.
The expected launch of yuan trading counters in the southbound link of the Stock Connect trading scheme that connects Hong Kong and the mainland, and the issuance of yuan-denominated shares by blue-chip firms are likely to propel yuan-denominated IPOs, Au says.
And these IPOs may be more well-received than Hong Kong's first yuan stock offering more than 10 years ago as investors are more aware and interested in yuan products following their growth in recent years.
HKEX introduced a scheme for companies to sell yuan-denominated shares in 2011 but few issuers have set up yuan trading counters since and those who did have seen low turnover.
Hui Xian Real Estate Investment Trust (87001), controlled by billionaire Li Ka-shing, held the first-ever yuan-denominated offering in the city to raise 10.48 billion yuan (HK$12.1 billion) in 2011. The REIT, however, saw its shares dive 9.4 percent on its debut after it was priced at 5.24 yuan apiece, the bottom end of the indicative range. Hui Xian recorded a turnover of 614,600 yuan last Friday.
This was followed by a yuan IPO a year later from Hopewell Highway Infrastructure, which later became Shenzhen Investment Holdings Bay Area Development (0737/80737) in 2019.
It is currently the only Hong Kong-listed company that has trading counters in both Hong Kong dollars and the yuan.
But its turnover was zero in yuan trading on Friday compared to a turnover of HK$471,100 in Hong Kong dollar trading.
Also, a proposed bill to waive stamp duty for market makers in yuan-denominated shares will help lift trading volumes in yuan shares and encourage yuan-denominated listings, Au says.
BULLISH FORECASTS
The big four accounting firms are mostly bullish about Hong Kong's new listings.
Deloitte expects the city to see 110 IPOs in 2023 raising a total of HK$230 billion, PricewaterhouseCoopers and Ernst & Young forecast annual proceeds to double to HK$200 billion while KPMG estimates Hong Kong will raise HK$180 billion.
Yet, despite the optimism, the city faces challenges from the mainland, US and Europe.
China's planned easing of rules for IPOs may attract larger firms to consider listing onshore instead of in Hong Kong, Goldman Sachs says.
Beijing published draft rules earlier this month to broaden its registration-based IPO system to all of the A-share markets with the aim of speeding up listings.
Under the current approval-based system, IPOs on China's main boards need a nod from regulators and IPO prices are capped by the regulators. The new rules, however, will allow stock exchanges to vet IPOs with a focus on information disclosure.
Meanwhile, major US-listed Chinese firms, including Pingduoduo and Full Truck Alliance, have reportedly shelved plans for second listings in Hong Kong with the easing of delisting risks after US regulators were given full access to the financial audits of Chinese firms listed in the US.
Some Chinese firms have since returned to the US markets. Hesai, a supplier of sensors for self-driving cars, recently raised US$190 million in a US IPO that was the largest by a Chinese firm since the crash of Didi Global in 2021.
Wong, however, believes many US-listed Chinese firms and listing candidates will still consider Hong Kong as a listing venue as Sino-US tensions continue. Chinese stocks saw a loss last week as tensions over a suspected Chinese spy balloon that was shot down triggered fears of US economic retaliation.
SWISS CHALLENGE
Meanwhile, companies in the mainland have been lining up for Swiss listings, with Contemporary Amperex Technology, the world's biggest electric vehicle battery maker, expected to raise at least US$5 billion through its sale of global depositary receipts in Switzerland.
The boom in GDR sales came after China last year expanded the Shanghai-London Stock Connect scheme to include Switzerland and Germany.
Nine Chinese companies, mainly biotech companies and manufacturers, have so far listed in Switzerland and raised a combined US$3.2 billion.
Compared to listing in Hong Kong, GDRs have a shorter approval time and can be freely converted back to A shares, says Ivy Hu Linghan, managing director for equity capital markets at UBS in Hong Kong, while expecting more issuers with larger valuations to opt for GDR sales this year.
But while certain sectors may choose Switzerland for their specific needs, Au believes Hong Kong has its appeal as an well-rounded market with higher liquidity, which can give firms a better valuation.
