FINANCE & BANKING

Chinese TMT IPOs Continued to Boom in 1H 2017, Says PwC

Over the first half of this year, the number of  Chinese Technology, Media and Telecommunications (TMT) IPOs maintained the boom that began in the second half of 2016, according to PwC China. There were 59 IPOs, which raised a total of 25.8 billion yuan, down 22% from the previous six months.

“Chinese regulators have accelerated approval of IPOs in the domestic market, resulting in some of the Chinese TMT companies that had been waiting to list got the greenlight early in the year,” says Jianbin Gao, PwC China TMT Leader. “Concurrently, SMEs and start-ups have remained active in recent years, and as a result, the number of Chinese TMT IPOs has remained at a high level since the second half of last year.”

According to the newly-released PwC Global Technology IPO Quarterly Review (which only includes IPOs with a value above US$40 million), 46 tech IPOs were listed worldwide over the first half of 2017, up 53% from the second half of 2016. In total, they raised approximately US$10.9 billion, up 54% from the prior six months.

China’s 28 tech IPOs were the most listings of all regions over the period. The United States was the runner-up with 10 IPOs. In terms of proceeds, US tech IPOs ranked first, followed by South Korea and China.

With regard to industry, the value of Internet software and service IPOs accounted for more than half of the total value of tech IPOs globally.

Within China, 27 of the TMT IPOs made in the first half of 2017 were on the GEM in Shenzhen, raising a total of 9 billion yuan, and accounting for 35% of the total proceeds. The Main Board saw 19 TMT IPOs, valued at 10.8 billion yuan, and making up 41% of the total.

Twelve TMT IPOs were listed on the SEM in Shenzhen, collecting 5.5 billion yuan, and accounting for 22% of the total. An additional Chinese TMT company elected to list overseas, raising 500 million yuan, or 2% of the total proceeds.

Notably, the average price-to-earnings ratio of A-share TMT companies has continued on a downward trajectory in recent years.

As of December 31, 2015, the average price-to-earnings ratio of A-share TMT companies reached 105, but had declined to 71 by June 30, 2016, dropping again to 68 by December 31, 2016, and reaching 54 as of June 30, 2017.

Proposal to broaden the market channels

“The Chinese A-share market will continue to attract a majority of Chinese TMT IPOs,” says Frank Lin, PwC China TMT Partner.  “At the same time, HKEX has sought public views on the proposal to broaden the market channels for Hong Kong's capital markets and improve the listing mechanism in Hong Kong.”

The proposal seeks to set up an innovative board independent of the Main Board and the Growth Enterprise Market, to attract New Economy companies, especially from TMT industries, to list in Hong Kong.

“The Hong Kong Innovation Board is also worth looking forward to companies that are not yet profitable or TMT companies with non-traditional governance structures,” adds Lin.

Looking ahead, Jianbin Gao said, “IPO approval in the Chinese domestic market has shown signs of slowing down recently. Enhanced supervision and review will raise the requirements for companies which expect to list domestically.

“We anticipate that the number of Chinese domestic TMT IPOs will remain stable over the second half of this year. Further, Chinese TMT IPOs will likely remain among the top 3 globally in the second half of 2017, and China will continue to be one of the world’s hottest IPO markets.”

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