Small to medium sized deals continue to dominate, several larger sized deals to boost the market
Hong Kong will continue to see robust IPO activity in the second half of 2017 driven mainly by small to medium sized listings, while several larger sized deals will fuel total fundraising to hit HKD170 billion by the end of 2017, according to KPMG forecasts.
In the first half of 2017*, Hong Kong recorded 69 IPOs, almost doubled from the 38 IPOs recorded over the same period of time last year. However, total fundraising increased by only 22 percent to HKD53 billion from HKD43.5 billion in 2016 H1 due to the dominance of small to medium sized IPOs.
Three quarters of Main Board IPOs raised less than HKD1 billion, dragging the average IPO deal size down to HKD1.5 billion - the lowest first half figure since 2013. In addition, more than half (35) of the total IPOs recorded in the first half were in the Growth Enterprise Market (GEM). GEM listings add up to HKD2.5 billion, or less than 5 percent of total proceeds, finds KPMG analysis.
Maggie Lee, Partner, Head of Capital Markets Development Group, Hong Kong, KPMG China, says: “We expect IPO activities to remain active in the second half with small to medium sized deals continuing to dominate the market. The latest consultation to tighten GEM listing requirements and the subsequent adjustment to the existing Main Board eligibility criteria may lead to an influx of applications for both Main Board and GEM listings in the interim. In addition, several larger sized IPOs in the pipeline would also help boost the market.”
KPMG forecasts there will be around 80 Main Board IPOs and 70 GEM IPOs worth a combined HKD 170 billion for the full year in Hong Kong.
In a bid to broaden the accessibility of Hong Kong’s capital markets and strengthen its listing regime, the Hong Kong Stock Exchange recently kicked off the public consultation process for establishing a New Board targeting companies from ‘new economy’ sectors. The consultation also includes proposals to review the GEM, as well as amend the listing rules of both GEM and the Main Board.
Lee comments: “It is important for Hong Kong to review its positioning as a leading capital market in light of the intensifying competition globally. Many tech companies have been in favour of US listings where dual class shareholding structures are allowed. The proposed establishment of a new board would attract more start-ups, emerging and technology companies to list in Hong Kong although it is imperative for the city to maintain its high regulatory standards and strong investor protection regime.”
The A-share IPO market, on the other hand, had a strong 2017 H1. Up to 247 companies floated their shares on the Shanghai and Shenzhen stock exchanges, which already surpassed the number of IPOs for full year 2016. This is also the highest first half figure in 10 years. Meanwhile, total fundraising stood at RMB 125.4 billion, which is more than four times over 2016 H1.
Charles Wan, Partner, Head of the Capital Markets Development Group, Northern China, KPMG China, says: “The consumer markets and industrials sectors led in terms of funds raised. This is in line with the government’s desire to deleverage companies within both sectors due to their heavy reliance on bank borrowings. The technology sector continues to play a big part in A-share IPOs with a 20 percent market share.”
IPOs were approved at an accelerated pace for most of 2017 H1 although the approval rate has gone down to 81 percent in the second quarter from around 90 percent in 2016 Q4.
KPMG expects IPO activity to continue to be strong in the second half of the year as the regulators continue to focus on clearing the pipeline. The number of active applications has gone down from 681 at the end of 2016 to 549 as at 15 June. New A-share listings are expected to hit a 10-year high of around 400, raising approximately RMB 220 billion in 2017.
*Note: All 2017 H1 figures are based on a combination of data (as at 15 June 2017) and KPMG projections
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 152 countries and regions, and have 189,000 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.
This publication provides a review of the Mainland China and Hong Kong IPO markets for the first half of 2017 and the outlook for the rest of the year