Hong Kong IPO market revival on the cards amid favourable interest-rate outlook, China policy easing

When Chinese baijiu maker ZJLD Group raised HK$5.31 billion (US$676.4 million) in April, few would have expected it to be Hong Kong’s biggest initial public offering of the year.

It trailed China Tourism Group Duty Free’s US$2.3 billion IPO in 2022 and fell far short of short-video platform Kuaishou Tech’s US$6.2 billion listing the previous year. Hong Kong’s IPO value fell 53.5 per cent to a 20-year low of US$5.9 billion from 68 listings, according to Refinitiv data. Simply put, 2023 was dismal for IPOs.

ZJLD’s CFO Lambert Wang Lianbo, however, sees the company’s listing as an achievement and expressed confidence in Hong Kong’s IPO market despite the slump in fundraising.

“The notion of a ‘good’ IPO market goes beyond the short-term and unexpected stock price performance,” Wang said. The promise of Hong Kong remains undiminished, he added.

ZJLD chairman Wu Xiangdong (right) and veteran employee Su Shuming at a gong-striking ceremony to mark the company’s trading debut in Hong Kong on April 27, 2023. Photo: Handout

Hong Kong Exchanges and Clearing’s (HKEX) main board dropped to 8th this year in the global IPO table, the lowest since 2001 when it ranked No 14, according to Refinitiv data released on Friday. The city last topped the league in 2019, with 144 IPOs raising US$40 billion.

The city fell behind Shenzhen’s ChiNext, Shanghai’s Star Market and its main board, Nasdaq and New York Stock Exchange in the US, Bombay Stock Exchange and National Stock Exchange in India, but was ahead of Abu Dhabi Securities Exchange, Indonesia Stock Exchange and Singapore Exchange.

Fundraising as a whole slumped globally this year as rising interest rates put a dampener on sentiment, with the total falling 26.7 per cent to US$119 billion, according to data compiled by Refinitiv from 104 markets worldwide.

ChiNext, the top IPO market, saw 110 companies mop up US$17.1 billion, but the value was 31 per cent lower than 2022.

Listings in Hong Kong picked up in the fourth quarter. Twenty-five companies raised US$2.6 billion during the period, compared with US$1 billion in the third quarter, US$1.4 billion in the second quarter and US$850 million in the first quarter.

Wong said ZJLD made the right choice to list in Hong Kong to boost the company’s reputation, touting the city’s unique position as a gateway between mainland China and the world, and its wide international investor base.

Beijing-headquartered ZJLD, founded by its chairman Wu Xiangdong two decades ago, is backed by US private equity giant KKR & Co. The Chinese liquor maker has several brands in its portfolio, such as Li Du and Xiang Jiao. Its flagship is Zhen Jiu, or Treasure of Liquor.

“ZJLD strives to attain the status of a Chinese spirit conglomerate with a wide range of spirits and brands with international influence, akin to industry leaders such as Diageo and Pernod Ricard, through sustained and continuous development,” Wang said.

Investment bankers blamed higher interest rates for the poor IPO sentiment worldwide. A consequence of the US raising its key rate by 5.25 percentage points since 2022 to crack down on inflation saw funds flow into US dollar assets, as investors shifted their money from equities to high-yielding, risk-free bank deposits.

“The poor IPO market in 2023 reflects the uncertain macroeconomic outlook of mainland China,” said John Lee Chen-kwok, vice-chairman and co-head of Asia country coverage at UBS. Many listing candidates are waiting for the market conditions to improve, he added.

Lee, however, is optimistic about the outlook for 2024, pointing to the HKEX’s numerous reforms to promote IPOs and encourage international firms to list here.

Since April, the HKEX has allowed pre-revenue large tech companies to list, while its CEO Nicolas Aguzin has promoted international listings, including setting up offices in New York in June, and London in September, alongside staging roadshows in the Middle East and Southeast Asia.

“However, all these reforms will not work unless the overall sentiment improves,” said Edmond Hui Yik-bun, CEO of Bright Smart Securities, one of the biggest local brokers.

“With the benchmark Hang Seng Index having fallen by nearly half from its peak and trading [near] its lowest level in 25 years, many investors have lost money. They do not have spare cash to invest in IPOs,” Hui said.

The Hang Seng Index dropped nearly 14 per cent this year. This is the first time the benchmark has fallen for four years in a row. It lost 15 per cent in 2022, 14 per cent in 2021 and 3.4 per cent in 2020.

Kenny Ng Lai-yin, a strategist at Everbright Securities International, is optimistic. He expects the US to start cutting interest rates next year and supportive policies from Beijing to bolster market sentiment.

“These two factors will serve as significant catalysts for the IPO market,” Ng said.

There are more than 90 IPO applications in the pipeline in Hong Kong, with a few potential blockbuster listings next year, according to Hong Kong stock exchange data.

Deloitte anticipates Hong Kong’s IPO market will experience a notable improvement in 2024. A total of 80 IPOs are expected to raise HK$100 billion, according to Edward Au, southern region managing partner at Deloitte China.

Shenzhen-listed SF Holding, the parent of courier operator SF Express, could raise up to US$3.3 billion in Hong Kong, according to brokers’ estimates.

Two other candidates – Cainiao Smart Logistics Network, owned by Alibaba Group Holding, the Post’s parent, and Midea Group, the world’s largest maker of home appliances – are widely expected to raise US$1 billion each.

“The market expectations of the rate-hike cycle concluding in the first half of 2024 set the stage for a rebound in IPO activity in Hong Kong,” Au said. “The redirection of liquidity, including funds from Europe, the US and the Middle East, towards Asia is anticipated.”

Other market participants such as Stacey Wong generally agree with the assessment.

The only hiccup, according to the president of the Association of Hong Kong Capital Market Practitioners, is geopolitics, which could prove to be a big factor.

Meanwhile, ZJLD’s Wang believes business leaders could help investors regain confidence.

“It is our responsibility, as business managers, decision-makers and industry foregoers, to create a solid foundation for such faith to be rebuilt,” he said.

“Only by harnessing our collective power as businesses at this juncture can we fundamentally contribute to the overall improvement of the broader environment and confirm Hong Kong as a favourable IPO market again.”