KPMG forecasts funds raised for IPOs in Hong Kong to reach HK$125 billion (US$16 billion) in 2013, after hitting a four-year low in 2012, on the back of a revival of China's economy and as IPO sentiment improves.
The Hong Kong Stock Exchange is estimated to record HKD80-HKD90 billion in IPO fund raising this year, according to KPMG. This is one-third of the total IPO proceeds of HKD259.8 billion in 2011 in what has been the third worst performing year in terms of funds raised after 2003 and 2008, in which the market was badly hit by the outbreak of SARS and the 2008 financial crisis, respectively.
Though Hong Kong was out of the top six in terms of IPO funds raised for most of 2012, KPMG expects a late surge in IPOs in December may help Hong Kong secure a place in the top three slots.
"The lacklustre post-market performances of newly-listed companies, together with insufficient demand for IPOs have deterred issuers from launching IPOs, or in many cases delayed planned listings even if approved by the Hong Kong Stock Exchange," says Paul Lau, Partner, KPMG China.Up to 30 November 2012, there were 77 new applications for listing on the Exchange, far less than the 166 and 138 in the full year of 2011 and 2010 respectively.
"Although the IPO uptake in December in 2012 may not be strong enough to form a momentum carrying forward to the first half of 2013, we do expect the market to pick up from mid-2013 when economic uncertainties ease," Lau says.
KPMG forecasts growth in Hong Kong’s IPO market, with around 85 IPOs set to raise around HKD125 billion in 2013.
"We expect that while market volatility will persist, there exists a backlog of deals to be launched as market sentiment improves," Lau adds.
According to Roy Leung, Partner, KPMG China, revival of China's economy is key in order to help stabilise the IPO market and create a more attractive environment for issuers to re-launch IPOs in Hong Kong.
"This was further substantiated by latest monthly statistics showing growth in both industrial production and retail sales; inflation is also under control. Chinese enterprises looking for expansion and fund raising will once again try to tap the IPO market as sentiment improves. With most of the large Chinese state-owned enterprises having gone public in the last decade, private-sector enterprises will be a key driver for the Hong Kong IPO market." Leung adds.
Listings of international companies in Hong Kong have played a crucial role in boosting IPO proceeds in the past few years. The 19 international listings in 2011 contributed 52 percent of total IPO proceeds, however only three international listings were recorded in 2012, accounting for just 7 percent of total funds raised.
"While 2012 IPO activities in Hong Kong for international companies have been severely hindered by market volatility, Hong Kong is still viewed as a nexus for Chinese companies looking for expansion abroad and overseas companies looking to solidify a China story for their businesses," Lau says.
Lau notes the Hong Kong Stock Exchange has also been actively taking measures to attract more foreign companies. These include clarifying and streamlining the requirements for listing overseas companies and to provide a disclosure-based approach to secondary listings of seasoned issuers from reputable overseas exchanges.
"As a result, the market anticipates a greater number of overseas listed companies coming to Hong Kong," says Lau.