Hong Kong IPO market – 2017 and 2018 outlook

New listings on the Hong Kong Stock Exchange (the Exchange) in 2017 hit an all-time high of 174 companies, while its market capitalisation reached HK$33,998.8 billion on the year’s final trading day, its highest level ever, according to the Exchange’s latest data^[1]  published 9 January 2018. 94 companies listed on the Main Board, compared to 81 in 2016, while 80 companies listed on GEM, up from 45 in 2016.

In terms of IPO funds raised, however, Hong Kong was pushed into third place behind the New York Stock Exchange (NYSE) and the Shanghai Stock Exchange (SSE), after ranking as the world’s top IPO fund raising exchange in 2016.^[2] The amount of Hong Kong IPO funds raised on the Exchange’s Main Board fell by around 36% in 2017 to HK$122.3 billion.^[3]

World’s Top 10 Exchanges by IPO Funds Raised in 2017

Ranking	Exchange	IPO Funds Raised in 2017 (US$ billion)
1	NYSE	27.5
2	Shanghai Stock Exchange	19.3
3	Hong Kong	16.4
4	Shenzhen	13.3
5	London Stock Exchange	13.0
6	Nasdaq	10.7
7	India	10.5
8	Korea Exchange	6.8
9	BM&FBOVESPA	5.8
10	Japan Exchange Group Inc	4.9

The decline in Hong Kong IPO funds raised is due partly to a fall in the number of mega-IPOs and a much larger number of smaller deals,^[4] as well as due to the timing of some potentially impactful floats. Reuters gives as an example the potential IPO of China Tower Corp. that could attract up to US$10 billion, which was originally planned for 2017, but is now expected in early 2018.^[5]

Increasing number of tech listings

Encouragingly, however, the last quarter of 2017 was particularly active, with four “mega listings” of Yixin Group Limited (Yixin), ZhongAn Online P & C Insurance Co., Ltd. (ZhongAn Insurance), China Literature Limited (China Literature) and Razer Inc. (Razer).  All four companies operate in the technology (tech) and internet-based sectors demonstrating that the Hong Kong regulators’ commitment to attracting new economy companies did not go unnoticed. ZhongAn Insurance’s IPO raised nearly HK$12 billion in September 2017, China Literature raised approximately HK$8.33 billion in November 2017, while Razer and Yixin raised HK$4.13 billion and HK$6.77 billion, respectively in November 2017. For further details of these IPOs, please see Listing of Tech Companies in Hong Kong section on Charltons’ website.

The recent spate of tech IPOs reflects Hong Kong investors’ keen interest in tech sector companies which showed first day price rises averaging 56%, compared to a 5% average price rise for financial stocks. Even more indicative was the average public oversubscription level, which amounted to 367 times for the Main Board IPOs of nine tech and internet companies, compared to just 2.2 times for the eight finance sector IPOs on the Main Board.^[6]

Overseas Company Listings

2017 also saw a breakthrough in attracting overseas companies to list on the Exchange, due to its increased market valuation. The Exchange saw listings of 28 overseas companies, the highest number in six years.^[7] These included 16 IPOs by Singaporean companies, 5 Malaysian companies IPOs and 1 IPO from each of Israel, Canada and Japan.

Taking into account that attracting more new economy companies and more overseas companies were two of the Exchange’s main targets outlined in its Strategic Plan 2016-2018, 2017 was a fruitful year for the Exchange.

2018 Outlook

In 2018, a number of large IPOs of Chinese tech firms are expected on the Exchange. Ernst and Young predicts an increase in tech listings on the Exchange in 2018 given the strong performance of recent tech listings.

Shanghai Lujiazui International Financial Asset Exchange Co., Ltd. (Lufax), a leading Chinese online wealth management platform, is reportedly planning an April IPO on the Exchange which could see the firm valued at US$60 billion, which would make it Hong Kong’s biggest fintech IPO yet.^[8]  Xiaomi Inc., an electronics and software company based in Beijing, is also reported to be preparing for a Hong Kong IPO^[9] once the Exchange’s proposed Listing Rule changes to permit the listing of companies with weighted voting rights structures have been adopted.  According to EY’s report, there are currently 104 companies waiting in the “IPO pipeline”, which have submitted their listing applications to the Exchange.^[10]

Another major IPO scheduled for 2018 is that of Saudi Arabian Oil Company (Saudi Aramco), and intense competition among the major exchanges to host its IPO is expected.^[11]

Overall, the outlook for Hong Kong’s IPO market for 2018 seems positive. PwC suggests that Hong Kong’s IPO fundraising could be the world’s largest in 2018, highlighting the regulators’ latest listing reforms as the main factor boosting the Exchange’s attractiveness.^[12] The market is not however expected to fully reflect the reforms in 2018, but it is expected that 2019 will see more tech and biotech listings. Deloitte expects roughly 150-160 Hong Kong IPOs in 2018 which could raise between HK$160 to HK$190 billion, citing listing reforms in Hong Kong and its advantageous “super-connector” position as the main reasons for optimism.^[13]

Several sources also predict a slowdown of Mainland China IPOs in 2018 due to potentially tighter review and scrutiny in approval procedures, which they cite as a potential positive for Hong Kong’s IPO market, given the competition that Mainland China’s exchanges pose for Hong Kong.^[14]

SCMP also mentions a potential lifting of the China State Council’s ban on H-share sales by owners of state-owned enterprises as a positive factor for Hong Kong as an IPO destination for Mainland Chinese companies.^[15]

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^[1] Hong Kong Exchanges and Clearing Limited. Market Statistics 2017.

^[2] https://www2.deloitte.com/cn/en/pages/about-deloitte/articles/pr-shanghai-hk-ipo-activities-to-remain-robust-in-2018.html

^[3] Hong Kong Exchanges and Clearing Limited. Market Statistics 2017.

^[4] EY report

^[5] https://www.reuters.com/article/us-asia-ipo/hong-kong-eyes-blockbuster-china-tech-ipo-queue-led-by-xiaomi-idUSKBN1EN02Y

^[6]  https://www.scmp.com/business/companies/article/2125873/hong-kong-falling-behind-ny-ipo-rankings-are-investors-ready

^[7] https://www.scmp.com/business/companies/article/2125869/shanghai-and-shenzhen-stock-exchanges-continue-chip-away-hong

^[8] SCMP. “China’s Lufax plans Hong Kong IPO in April at US$60 billion valuation: sources”. 12 January 2018.

^[9] Asia Times. “Sources say Xiaomi set for IPO in Hong Kong”. 11 January 2018.

^[10] EY report

^[11] https://www.ft.com/content/21cce5dc-f142-11e7-ac08-07c3086a2625

^[12] https://asia.nikkei.com/Markets/Nikkei-Markets/Hong-Kong-s-IPO-Market-Poised-To-Be-Top-Fundraiser-In-2018-PwC-Says

^[13]https://www2.deloitte.com/cn/en/pages/audit/articles/2017-review-2018-outlook-of-chinese-mainland-and-hk-ipo-markets.html

^[14] ibid

^[15] SCMP. “It’s Shanghai and not New York that Hong Kong has to worry about in the 2018 IPO stakes”.