Driven by two mega-listings in May, Hong Kong raised more funds in the first half of 2013 over last year although at a lower level than before the financial crisis, according to an analysis from the National Public Offering Group of Deloitte Touche Tohmatsu, a professional services organisation. On the other hand, IPOs on Mainland bourses remained stagnant during the period due to the on-going special inspection on IPO applicants' 2012 financial reports conducted by the China Securities Regulatory Commission.
For the first six months of 2013, Hong Kong is expected to see 22 new listings raising HK$39.5 billion, up 28% from the HK$30.8 billion proceeds raised by 32 IPOs during the same period of last year. Nearly three-fifths of the proceeds came from the mega-listings of China Galaxy Securities and Sinopec Engineering in May.
"We are excited to see Hong Kong become one of the strongest IPO venues by the end of the first half of 2013 after April which saw just one new listing and some IPOs shelved or delayed since late May. Generally speaking, various listing indicators including price-earnings multiples, average first day returns, average deal size, size of the top five IPOs, over-subscription rate and pricing still surged across the board when compared with last year," says Edward Au, Co-Leader, National Public Offering Group of Deloitte China.
"Part of this remarkable result was fuelled by the additional liquidity from the stimulus programs from the U.S. Federal Reserve and the European Central Bank and an uptick in market sentiment since the fourth quarter of last year. The positive trend was helped by major economic and political factors such as the improvement in U.S. economic indicators and the successful transition to a new Chinese administration as well," adds Au.
According to the analysis, thanks in part to the listing of SINOPEC Engineering, IPO proceeds from Hong Kong are expected to rank fourth globally, trailing those of New York, Brazil and Nasdaq while leading those from London, Tokyo and Frankfurt. New York topped the global IPO market with the IPOs of Zoetis and ING U.S. while Brazil benefited from the world's largest IPO to date, BB Seguridade. Because of the unofficial moratorium on IPOs since late 2012, Shanghai and Shenzhen were not ranked this year.
Looking ahead, given Hong Kong's close economic ties with the Chinese Mainland, its IPO leadership is likely to be challenged by when and how new urbanisation measures will be leveraged to stimulate the slower growth of the Chinese economy. It is, however, anticipated to be able to shrug off the impact of the expected exit of QE3 gradually.
As such, the go-global strategy of Chinese companies under the 12th Five-Year Plan and the relaxation of overseas listing requirements for Chinese companies are anticipated to continue to be the key drivers spurring new listings in Hong Kong. By the end of the year, the market is expected to have 65-75 new listings, raising HK$100-130 billion, a year-on-year increase of 4.8%-20.9% and an increase of 11.4-44.8% respectively.
"The recently-acquired London Metal Exchange (LME) should play a crucial role in facilitating the increase in Renminbi (RMB)-denominated and international listings. By expanding RMB-denominated investment products and providing an investment platform for commodity and resources companies, we believe the LME can help elevate Hong Kong's leadership to the next level," concluded Au.
As for the Mainland market, following the completion of the consultation on the IPO reform in late June, Anthony Wu, China A-Share Capital Market Leader of National Public Offering Group at Deloitte China said that new IPOs are likely to be re-launched in the later part of the third quarter.
To ensure liquidity of the A-share market would not be drained, small and medium-sized IPOs from technology, media and telecommunications, conventional and hi-end manufacturing, and life science and healthcare sectors are likely to be the first batch of the new issuers, based on an analysis on the 83 companies that have passed the public offering review meeting as at 20 June 2013. He, therefore, foresees that the number of new listings and proceeds raised throughout 2013 on the Mainland will be significantly lower than last year. About 30-40 new listings are expected to raise proceeds of approximately RMB25-35 billion.