Hong Kong IPO fundraising craters to two-decade low; city must do more to claw back share listings amid headwinds: EY

The haul from initial public offerings (IPOs) in Hong Kong has hit a two-decade low, and regulatory improvements must continue to overcome ongoing headwinds expected in 2024, according to an EY report.

Funds raised by share listings in the city declined 59 per cent year on year to HK$41.3 billion (US$5.3 billion) as of November 17, according to the report, released on Tuesday. The city saw a total of 61 companies list, a year-on-year decline of 19 per cent.

These declines came amid a slowdown in global IPO activity: proceeds fell 35 per cent and the number of deals fell 12 per cent year on year, according to EY’s report.

Amid market volatility and macro uncertainty, companies, private equity firms, venture capitalists and investors are likely to remain cautious and disciplined approaching the end of the year, the report said. Proactive measures to improve market liquidity are crucial to revitalising the Hong Kong capital market, said Jacky Lai, spokesman for EY Hong Kong’s capital market service.

People walk through the piazza in front of Exchange Square, the headquarters of Hong Kong Exchanges and Clearing, the city’s bourse operator, on September 6, 2023. Photo: Elson Li

For example, the launch of the Fast Interface for New Issuance (FINI) platform is a major initiative that will significantly shorten, modernise and digitise Hong Kong’s settlement process, Lai said.

The Hong Kong government and regulators must continue their efforts to recuperate from the downturn, enhancing the liquidity of the stock market and wooing foreign capital to boost the attractiveness of the city’s capital market, the report said.

Yet such initiatives may not be enough to restore activity amid a drought of mega listings. The proceeds raised by Hong Kong’s top 10 IPOs dropped 70 per cent year on year, according to EY.

Hong Kong’s largest IPO this year was that of Chinese baijiu distiller ZJLD Group, which raised some HK$5.3 billion in April. The second biggest was J&T Global Express, an Asian courier service group based in Shanghai, which raised HK$4.1 billion in October.

The two listings represent a fraction of the blockbuster 2022 listing of China Tourism Group Duty Free, which raised HK$16.2 billion.

Some companies have also chosen to delay their plans to go public due to the underwhelming post-IPO performance of a few high-profile listings, according to EY.

For example, Alibaba Group Holding decided not to pursue the complete spin-off of Alibaba Cloud and will defer the IPO plans for Hema Fresh. Alibaba owns the Post.

“Enhancing the Stock Connect schemes and a more predictable mechanism for Chinese firms to list in Hong Kong are the types of policies that can help boost sentiment and liquidity,” said Gary Ng, senior economist at Natixis.

FINI is a positive move to lower transaction time and costs, he added. However the government and regulators must provide the right infrastructure with better efficiency to help boost competitiveness in the long run, he said.

Mainland China’s markets accounted for 40 per cent of global proceeds so far in 2023, as funds raised on China’s exchanges grew 41 per cent year on year to 350 billion yuan (US$49 billion). But the number of IPOs fell 30 per cent to about 300.

Tighter rules on new listings in mainland markets led to a major slowdown in listings in the second half of the year, which could encourage a pivot to Hong Kong.

“Uncertainties in the global and China macro economies will likely outweigh regulators’ measures to boost onshore market activity,” said Terence Ho, partner at EY. “The onshore IPO slowdown is likely to continue into 2024.”

Close to 100 companies are still queuing to be listed in Hong Kong, exemplifying the intense interest and positive sentiment towards the Hong Kong market, said Peter Chan, EY Hong Kong TMT (technology, media, and telecom) assurance leader.

“With the tightening of IPOs in the Chinese mainland, companies, especially retail and consumer products companies, will switch to the Hong Kong market as well,” Chan said.

EY’s numbers align with the most recent report from Refinitiv, which showed that a total of 42 companies raised US$3.13 billion on the main board of the Hong Kong stock exchange in the first nine months of 2023 – a 65 per cent decline from the same period last year and the lowest nine-month total since US$1.82 billion in 2003 amid the severe acute respiratory syndrome outbreak. That put the city in ninth place among worldwide IPO venues, down from third place at the end of last year.

Additional reporting by Yuke Xie