Hong Kong and Shanghai are set to secure first and second positions respectively for initial public offerings (IPOs), in terms of funds raised, according to latest KPMG analysis.
Hong Kong is estimated to raise funds totalling HKD 195 billion, maintaining its top position for a second consecutive year. KPMG forecasts 120 companies will raise HKD 200 billion in Hong Kong in 2017. In mainland China meanwhile, around 700 companies are queuing to list. An acceleration of IPO approvals and the gradual establishment of multi-tiered capital markets are expected to help speed up the process. Total IPO proceeds in Shanghai are forecast to remain at a similar level of RMB 105 billion, despite the number of listings increasing to 105, from 89 the previous year.
Charles Wan, Head of the Capital Markets Development Group, Northern China, KPMG China, says: “We have seen continued strong momentum in Shanghai and Shenzhen in the second half of this year, driven by accelerated IPO approvals and listings of several regional commercial banks. The financial services sector helped to boost the Shanghai IPO market – seven regional commercial banks completed their listings this year and raised RMB 28.7 billion. This sector will continue to be a key growth driver, with nine additional IPO applications in the pipeline from regional commercial banks.”
In Hong Kong, while the number of IPOs is expected to reach 120 in the full year of 2016, KPMG forecasts that proceeds will decline 26 percent to HKD 195 billion, down from HKD 263 billion in 2015, a three-year low. This is primarily due to a decrease in the number of sizable deals which raised over HKD 5 billion each. Only 10 companies raised more than HKD 5 billion in 2016, in contrast to 15 in 2015.
The financial services sector continues to be the major contributor in Hong Kong, in terms of funds raised in 2016, accounting for nearly 70 percent of total funds raised, up from 54 percent a year earlier. KPMG analysis highlights that nine out of the top 10 IPOs are financial services organisations.
Maggie Lee, Head of the Capital Markets Development Group, Hong Kong, KPMG China, says: “Hong Kong is set to continue as a preferred destination for listing. The recently launched Shenzhen-Hong Kong Stock Connect is likely to boost liquidity in both China and Hong Kong’s capital markets and further enhance the integration of the two regions’ capital markets. This will increase Hong Kong’s attractiveness as an investment hub.”
Louis Lau, Partner, Capital Markets Advisory Group, KPMG China, adds: “The Shenzhen stock market tends to feature a larger number of technology companies, whereas Hong Kong does not have this sector included to the same extent. This may attract more northbound investment compared to the Shanghai-Hong Kong Stock Connect. The Shenzhen-Hong Kong Stock Connect may trigger greater interest in the technology sector and attract more tech firms seeking IPOs in Hong Kong.”
Shenzhen meanwhile is expected to raise RMB 50 billion via 125 IPOs, compared with RMB 49 billion in 2015, when 130 companies floated their shares. Companies from industrial manufacturing, technology, media and telecom sectors contributed two-thirds of total IPO proceeds in 2016. High-end manufacturing is expected to play a greater role in the IPO market, KPMG analysis notes.
Lee adds: “With deleveraging across multiple sectors in China, the demand for equity financing from China enterprises is expected to continue. The number of China companies seeking to list is likely to increase, as evidenced by the strong pipeline in the Hong Kong IPO market. Over half of these IPO applicants originate in China.”
Wan concludes: “China’s capital markets will likely be strongly linked to the country’s economic development progress; other key reform measures such as deepening the ChiNext, NEEQ (National Equities Exchange and Quotations) reforms, mechanisms for transferring between markets, and the registration-based system are critical for future market development. In light of stabilising economic growth and various regulatory reforms in progress, it is anticipated that China’s capital markets will maintain their advantage and be set to play a greater role in the global capital markets.”
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KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and regions, and have 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.