IPO fundraising activity will reach record levels globally in 2010 with funds raised likely to exceed US$300 billion. Despite the fragility of economic recovery in Western markets, the economic growth story and record-breaking debuts in China have fuelled a strong worldwide IPO recovery. In the first 11 months of 2010, IPOs worldwide have already raised US$255.3 billion in 1,199 deals. By year end, total global IPO values will exceed the previous record of US$295 billion raised in the global fundraising peak of 2007, according to Ernst & Young’s Year-end Global IPO Update.
The fourth quarter of 2010 should also reach the highest quarterly IPO value on record (surpassing the US$104.8 billion raised in Q4 2007). This record will likely be achieved, as global IPO value has already reached US$102.8 billion through 294 deals so far this quarter, and in December, over 80 further deals worth a minimum of US$17 billion are currently expected.
Benefiting from mainland China’s strong GDP growth and market liquidity, Greater China issuers dominate, making up over 46% of global IPO value (US$117.9 billion in 442 deals from January to November 2010, a 170% increase in total value from the same time period in 2009).
The Hong Kong Stock Exchange (HKEx), buoyed by the Agricultural Bank of China and AIA Group listings, will rank number one by total funds raised in 2010, the second consecutive year Hong Kong has dominated the global IPO market. From January to November 2010, HKEx raised US$ 51.3 billion in 79 IPOs. The US$22.1 billion mega IPO by the Agricultural Bank of China was the world’s largest IPO ever, and made up 9% of the first 11 months’ total IPO funds raised globally. These proceeds surpassed the US$21.9 billion raised by the previous IPO record holder, another Chinese state-owned bank, Industrial and Commercial Bank of China (ICBC). The fourth quarter of 2010 saw the second largest IPO of the year: the US$20.5 billion IPO by AIA Group, the Asian life insurance business spun off from America International Group, the US insurance corporation.
“We expect that IPO activity in 2011 will continue to be strong. While Chinese Mainland companies will continue to be the major driver for IPO activity in Hong Kong, we will also see more and more listings of companies from both the developed and emerging markets, as HKEx has become a hub for cross-border IPO activity," says Dilys Chau, Assurance Partner, Ernst & Young.
The Shenzhen Stock Exchange ranks second globally by funds raised, raising US$40 billion (15.7% of the first eleven month of global proceeds). The Shanghai Stock Exchange (SSE) ranks fourth globally by funds raised, raising US$26.2 billion (10.3% of the first eleven month of global proceeds). Due to great demand for growth-stage companies, the Shenzhen Stock Exchange, including both its SME Board and ChiNext, was the most active by number of deals globally, with 288 deals (24% of the total number of IPOs globally).
According to Chau, the listing of Chinese companies in the US was in the spotlight in the last two quarters in 2010. "The market demand is huge as more and more US investors would like to buy into the shares of Chinese companies, and thereby participate in the economic growth of China. This trend will continue in 2011," adds Chau. Other than technology, media and telecommunications (TMT), cleantech and healthcare sectors, Chau sees more Chinese companies from "traditional" industries having IPOs in the US too. In 2010, six Chinese companies listed in the US adopted IFRS instead of US GAAP, while there was only one in the previous year. "All companies listed in the US are required to adopt IFRS starting from 2014 to 2016, and with this deadline approaching Chinese companies are increasingly adopting IFRS directly for their US IPO. This trend is welcomed by many Chinese companies planning for a US IPO because, comparing to US GAAP, there are more IFRS resources in China. This will in turn attract more Chinese companies not familiar with financial reporting under US GAAP, as previously they did not consider this an option for them," says Chau.
Ringo Choi, Regional Managing Partner, China South, Ernst & Young adds that despite market uncertainty, new IPO filings continue to increase around the world and a large backlog has built up as companies await greater macroeconomic stability. "Therefore, we expect the current IPO momentum to continue in 2011. In addition, we are seeing more foreign funds buying into the shares of Chinese companies, which is driving IPO activity in Greater China. We believe that the trend will continue in 2011,” says Choi.
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