Hong Kong is expected to regain its No. 1 position as the top destination for initial public offerings (IPOs) for the first time since 2011, with estimated IPO proceeds of HKD260 billion for 2015, according to KPMG analysis.
KPMG forecasts Hong Kong will record 117 new listings with proceeds of HKD260 billion by end of 2015, an increase from 109 IPOs with proceeds of HKD232 billion registered last year. The strong performance is attributed to 15 sizable deals – raising over HKD5 billion each – primarily from the financial services (FS) sector. In comparison, in 2014, 10 companies raised more than HKD5 billion via new listings.
Maggie Lee, Head of Capital Markets Development Group, Hong Kong, KPMG China, says: “Companies from the financial services sector, such as banks, asset management, securities brokerages, insurance and micro financing, continued to underpin the growth in Hong Kong’s IPO market during 2015. Although only 15 out of 117 companies are from the FS sector, they contributed more than 50 percent of total funds raised.”
An additional highlight in 2015 was the significant increase of new listings in the Growth Enterprise Market (GEM). IPO volumes rose 63 percent to 31 from 19 in 2014. Share price volatility of certain GEM IPOs has raised concerns from regulators about the positioning of the GEM Board and whether regulations should be tightened.
The A-share market also witnessed a number of large listings in the first half. Despite the four-month IPO suspension during the year, the Shanghai Stock Exchange is expected to see its proceeds more than triple to RMB 108 billion in 2015 from RMB 31 billion in the previous year, while the number of listings doubled to 89 from 43 a year ago, helping the bourse to secure the fourth place as a IPO destination in the world, in terms of funds raised. Similar to Hong Kong, listings from FS in Shanghai Stock Exchange account for a small portion of IPO volumes (3 percent), however they contributed 42 percent of the proceeds.
Separately, the Shenzhen Stock Exchange is estimated to see 131 IPOs with proceeds totalling RMB 49 billion by the end of 2015 (an increase from 82 IPOs and RMB 36 billion in 2014).
Louis Lau, Partner, Capital Markets Advisory Group, KPMG China, says: “The China Securities Regulatory Commission announced in early November the resumption of IPOs, and at the same time proposed a series of draft regulations to reform the IPO mechanism, such as changing subscription rules to avoid capital lock up, increased responsibilities for professional intermediaries and enhanced investor protection. These changes are yet to be finalised and implemented but we expect these will facilitate the advancement of the A-share market.”
KPMG forecasts 100 companies to raise over HKD250 billion in 2016 via new listings in Hong Kong, whereas the expected increase in interest rate will have negative effect on the stock market.
Looking ahead, the IPO pipeline for sizeable deals will remain strong in Hong Kong, with Chinese insurers, local Chinese banks and leasing subsidiaries of big Chinese lenders planning to float their shares. In addition, companies in healthcare and environment-related sectors are expected to see more listings.
Lee says: “Reopening the A-share IPO market provides companies with more choice and may increase challenges for Hong Kong. However, Hong Kong still enjoys an edge in gaining access to international investors. Meanwhile, the Shanghai-Hong Kong Stock Connect and the upcoming connection with Shenzhen bourse will bring the two markets closer and boost market liquidity in both regions.”
In China, with nearly 700 companies queuing for listing, the A-share IPO market is set to see another boom following recent reforms and their implementation. These include the migration from current approval-based to registration-based IPO system, further development of the multi-tier capital markets such as segmentation of the National Equities Exchanges and Quotation (NEEQ) and the strategic emerging industries board on the Shanghai Stock Exchange.
Charles Wan, Head of Capital Markets Development Group, Northern China, KPMG China, concludes: “2016 is expected to be a critical year with various reforms. The pace and magnitude of the capital market development in the next five years will largely depend on the progress of reform. China’s capital market is set to play a greater role in the global capital market by the establishment of a large talent pool and better leveraging the IPO markets in the mainland and Hong Kong.”
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