Hong Kong IPO market finds 'positivity' after slow first half of 2024 as deal pipeline fills

Initial public offering (IPO) activity in Hong Kong is gearing up for a busier second half of the year, shaking off a slow first six months as more Chinese companies pivot to list in the city, according to midyear reports from KPMG and EY.

High interest rates and global economic uncertainty depressed IPO fundraising in Hong Kong by 35 per cent year on year to HK$11.6 billion (US$1.5 billion) in the first half, according to KPMG. Deal volume fell 15 per cent to 27 new listings, and the average deal size plunged 25 per cent to HK$428 million.

Those stats will put Hong Kong in 10th place among IPO venues globally for the first half, KPMG estimates. However, things are looking up, with the pipeline of active applications at 105 currently from 68 in January, KPMG's report said.

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"There is new-found positivity in the Hong Kong IPO market, as evidenced by the surge in IPO applicants," said Irene Chu, partner and head of new economy and life sciences in Hong Kong for KPMG China.

As Hong Kong stocks rebounded in May - on improved sentiment after mainland China's stock regulator the China Securities Regulatory Commission (CSRC) announced five rescue measures for the market in April - IPO volume and proceeds in the second quarter increased by 33 per cent and 52 per cent quarter on quarter, respectively. Liquidity and other market indicators have also improved, boosting investor confidence, according to EY.

"This upsurge has been supported by the CSRC's five measures and A-share applicants switching their IPO plans to Hong Kong," Chu said.

Mainland Chinese companies dominated the Hong Kong IPO market in the first half.

"Some [Chinese companies] have been planning to list in Hong Kong for a long time, while others have chosen to reroute to Hong Kong given the current regulatory environment," said Jacky Lai, assurance partner with EY Hong Kong's capital market service.

"For Chinese mainland companies, the processing time of getting listed in Hong Kong is shorter and of higher certainty."

A tightening of the regulatory environment in mainland China chilled IPO activity, as the market watchdog announced earlier this year it would tighten listing rules to prioritise quality over quantity.

IPOs in mainland China's A-shares market plunged 70 per cent to 52 deals in the first six months, while proceeds crashed 75 per cent to 56.5 billion yuan (US$7.8 billion), KPMG said.

Globally, 513 companies completed IPOs in the first half, raising US$51.6 billion while both proceeds and deal count fell 20 per cent year on year, according to KPMG.

A view of Exchange Square in Central, home to the city's bourse operator Hong Kong Exchanges and Clearing, on April 2, 2024. Photo: Jelly Tse. alt=A view of Exchange Square in Central, home to the city's bourse operator Hong Kong Exchanges and Clearing, on April 2, 2024. Photo: Jelly Tse.>

The New York Stock Exchange, Nasdaq and the National Stock Exchange of India were the top three listing destinations, based on proceeds. Shanghai and Shenzhen rounded out the top five spots.

In the first half of the year, 92 per cent of Hong Kong IPOs were oversubscribed, up 6 percentage points year on year, and they were oversubscribed 196 times on average, compared with eight times in the prior period, according to EY.

Technology companies led in deals and proceeds in Hong Kong, including QuantumPharm, which was the city's third-largest listing of the year and the first specialist technology company to list under the Chapter 18C regime.

The Tencent-backed artificial intelligence drug researcher raised HK$989.3 million last week, behind tea shop Sichuan Baicha Baidao Industrial's HK$2.58 billion IPO in April and RoboSense Technology's HK$1.06 billion offering in January, according to LSEG data.

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