Innovation and technology listings to drive Hong Kong and mainland China IPO markets in H2 2019, according to KPMG analysis

Innovation and technology listings to drive IPO mark...

The STAR Market is expected to be a strong catalyst for China’s A-share IPO market; New Economy companies to drive the Hong Kong IPO market

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Hong Kong, 26 June 2019 – Innovation and technology firms have been a major force in shaping and driving the Hong Kong and A-share IPO markets, and this is expected to continue into the second half of this year, according to KPMG in its 2019 mid-year review of the IPO market.

Year to date, the Hong Kong IPO market has remained steady, ranking third behind the NYSE and NASDAQ, with total funds raised of HKD 69.5 billion (USD 8.9 billion) and 74 new listings, compared with HKD 51.6 billion and 98 new listings in the same period last year, when it was ranked fifth. The total funds raised in the first half of 2019 is the highest amount in first-half proceeds since 2016.

Paul Lau, Partner, Head of Capital Markets, KPMG China, said: “Innovation and technology companies are expected to continue to generate investor interest in the Hong Kong IPO landscape in the second half. We also expect China’s new technology-focused STAR market to support the development of innovative firms and serve as a strong catalyst for the overall A-share IPO market in the long run.”

Life Sciences claimed top position in terms of total funds raised on the Hong Kong Stock Exchange in the first half, with HKD 16.1 billion raised. This sector was helped by the listing of three profit-making companies and three pre-revenue biotech firms listed under the new chapter.

Year to date, 37 percent of total funds raised in Hong Kong are from the New Economy sector, compared with 31 percent over the same period last year.

Irene Chu, Partner, Head of New Economy & Life Sciences, Hong Kong, KPMG China, said: “Despite the macroeconomic uncertainties, New Economy businesses continue to attract investors in private markets, providing a decent pipeline of strong IPO candidates for the public markets.”

Chu added: “Continuous healthcare policy revamp in China, such as the centralised procurement for generic drugs and accelerated approval for foreign innovative drugs, has created greater opportunities for biotech firms that focus on the development of innovative drugs. Companies with innovative technologies that have the potential to address a real unmet need of economic significance will be favoured.”

In addition, overseas companies are expected to be a major factor in boosting Hong Kong IPO market proceeds as the exchange improves the IPO settlement process to help align it with NYSE and NASDAQ practices. The bourse’s push to attract overseas companies will continue to emphasise Hong Kong’s unique access to the mainland China market as well as the city’s robust legal and financial system.

Lau added: “Hong Kong remains an attractive international listing destination, supported by the new listing regime to attract New Economy companies, such as pre-revenue biotech firms and those with weighted voting rights structure.”

The IPO pipeline in Hong Kong has been at a historically high level, exceeding 190 applications. KPMG maintains its earlier forecast of a total fundraising of over HKD 200 billion from 200 new listings in 2019 in Hong Kong.

The Shanghai Stock Exchange and Shenzhen Stock Exchange meanwhile recorded 67 new listings for a combined RMB 62.6 billion in the first half of 2019. Industrial IPOs continued to lead the A-share IPO market, ranking first among all sectors in terms of new listings and funds raised. This sector is on course to be a major contributor to the total number of new listings for the rest of the year.

China’s new Sci-Tech Innovation Board – called the STAR Market – is expected to debut in early Q3 with a strong pipeline of more than 120 companies looking to list. Designed to help innovation and technology companies to list on the Shanghai Stock Exchange, the market-oriented STAR Market is poised to support the development of innovative companies and provide a strong boost for the A share IPO market.

Louis Lau, Partner, Capital Markets Advisory Group, KPMG China, said: “The registration-based STAR Market has generated significant interest from market participants. By offering more flexible financial requirements than what was previously available in mainland China, the STAR Market serves as an opportunity to reform key elements of the capital market, such as valuation, disclosure of information and trading mechanism.”

 

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