A-Share IPOs Will Remain Stable, With Slight Drop in Second Half 2017

PwC has released data that points to a large year-on-year (YOY) increase in both the number of IPOs and amount of funds raised in the A-Share market in mainland China during the first half of 2017.

Altogether, 246 IPOs were completed in the A-share market, raising a total of RMB 125.5 billion. This represents increases of 303% and 336% for the volume and value respectively, compared with the same period in 2016.

Among the 246 IPOs in the A-share market in the first half of 2017, 120 listed on the Shanghai Main Board, raising a total of RMB 76.6 billion.

The Shenzhen SME exchange had 44 listings over the period, which raised a total of RMB 20.4 billion.

There were an additional 82 listings on the Shenzhen ChiNext exchange, which raised a total of RMB 28.5 billion over 1H 2017. The majority of these companies are in manufacturing, consumer goods and services sectors, as well as information technology and telecommunications.

Decline in approvals

"IPOs remained fast-growing in the first quarter of 2017 following the trend of the second half of last year,” says Frank Lyn, PwC Mainland China and Hong Kong Markets Leader.  “However, considering the overall scale of the capital markets, affordable capacity, the quality of IPOs and investor risks, approvals have declined since late May."

Although A- shares gained inclusion to the MSCI’s emerging market equity index on 21st June, the regulatory authority will not adjust the direction or the pace of its reforms.

“We believe growth in IPO will drop moderately in the second half compared to the first half of this year. The total number of IPOs will reach 320-350, with RMB 220-250 billion funds raised in the whole year. This matches our prediction earlier this year,” notes Lyn.

Jean Sun, PwC China Assurance Partner added: "We notice that the regulator is becoming more and more professional in its requirements regarding the responsibilities of intermediaries on the quality of IPOs. This is affecting IPO growth. Looking at sectors, manufacturing, consumer goods and service sectors still dominate the IPO market. With continuing reform of capital markets, we believe that high quality TMT and game companies could increase.”

HK’s IPO activity remains high

Looking at the Hong Kong market, IPO activity remained high in the first half of 2017, achieving increases in both listings tally and funds raised. In the first half of 2017, there were a total of 72 new listings in Hong Kong – a 80% increase on the same period last year.

Total funds raised reached HK$53.6 billion, increasing 23% year on year. A vibrant market in small-to-medium sized IPOs contributed to listings on the GEM board more than doubling, along with its market capitalization.

This year is the 20th anniversary of Hong Kong's return to China. To celebrate this, the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Bay Area was signed.

According to the agreement, the greater bay area will develop into a world-class harbor and airport cluster, with a modern transport network covering high speed highway, railway and urban rail transit. This will deepen cooperation between mainland China, Hong Kong and Macao and facilitate local economic development.

Additionally, the Bond Connect programme was launched this. Along with the deepening of mutual market access arrangements over the past two years, it will help attract international investment to invest in corporate bonds and stocks through Hong Kong’s connectivity channels over the long term. This will benefit Hong Kong’s financial markets and financial institutions, further strengthening the city’s position of one of the most competitive international financial centers.

“PwC expects stable development for the city’s IPO market, and the possibility of some mega-sized IPOs before the end of this year. A vibrant IPO market driven by SMEs could result in a record-breaking 160 IPOs over the course of the year, with total fundraising of HK$220 billion,” says Lyn.