Hong Kong's capital market posts best nine months since 1980 as Chinese companies redirect IPOs closer to home from New York

“deliberate act of deceit, subject to additional disclosure rules, Baidu, raised US$3.08 billion in March, Bilibili, Xpeng, raised US$2.06 billion in July, Li Auto, US$1.73 billion a month, US$6.2 billion stock sale, Kuaishou Technology, JD Logistics’ US$3.6 billion, Hong Kong Exchanges and Clearing Limited, US-China relation

The capital market of Hong Kong is having its best nine months on record, as a flurry of Chinese companies redirected their fundraising exercises to the city from New York amid lingering US-China geopolitical tension.

As many as 71 companies raised US$35.9 billion in the first nine months of 2021 through initial public offerings (IPOs) and secondary listings in Hong Kong, according to data compiled by Refinitiv. That was a jump of 25 per cent from the same period last year, making it the best nine months since records began in 1980, Refinitiv said.

The bonanza propelled the main board of the Hong Kong stock exchange to the world’s third-largest financial bourse, after the New York Stock Exchange (NYSE) and Nasdaq. That put Hong Kong ahead of the main board and the Star Market in Shanghai, and ChiNext in Shenzhen, according to Refinitiv’s data. Up to 96 per cent of the fundraising during the first three quarters were by companies whose businesses are based in mainland China, a trend that is likely to continue, brokers said.

“Hong Kong’s IPO market will continue to be strong in the fourth quarter, and in the coming years,” said Joseph Tong Tang, chairman of Morton Securities. “China‘s tightening policies for technology companies to list overseas, as well as tougher US financial disclosure requirements, will [lead to] more mainland firms listing in Hong Kong instead of the US.”

One of the most significant turning points for Hong Kong’s capital market happened on July 10, when the Cyberspace Administration of China (CAC) said it would review any foreign listings – excluding those in the Hong Kong market – by technology companies that possess the data of at least 1 million users. That additional layer in the fundraising approval process was added after Didi Chuxing pushed its way to raise US$4.4 billion in New York against the injunctions of Chinese officials, a move they described as a “deliberate act of deceit.”

At the same time, the US Securities and Exchanges Commission (SEC) upped the ante, with its chairman instructing officials to put Chinese companies’ US listing applications on hold subject to additional disclosure rules, citing concerns over their accounting standards, as well as their stockholdings structures known as variable interest entities (VIEs).

“Hong Kong will certainly be the first choice for Chinese companies seeking to list outside China,” said Tong.

Seven of Hong Kong’s 10 largest IPOs were US-listed Chinese tech companies seeking second or dual primary listings in the city, the Refinitiv data showed. Baidu, the dominant Chinese internet search engine, raised US$3.08 billion in March in a secondary listing, while the video-sharing platform Bilibili raised US$2.99 billion, also in the first quarter.

Xpeng, the electric car maker based in southern China’s Guangzhou, raised US$2.06 billion in July, followed by its Beijing-based rival Li Auto, which raised US$1.73 billion a month later. Both carmakers are dual-listed in Hong Kong and the US, which subject them to both regulators.

Hong Kong’s biggest IPO of 2021 was the US$6.2 billion stock sale by the video-streaming platform Kuaishou Technology in February, followed by JD Logistics’ US$3.6 billion IPO in May.

“deliberate act of deceit, subject to additional disclosure rules, Baidu, raised US$3.08 billion in March, Bilibili, Xpeng, raised US$2.06 billion in July, Li Auto, US$1.73 billion a month, US$6.2 billion stock sale, Kuaishou Technology, JD Logistics’ US$3.6 billion, Hong Kong Exchanges and Clearing Limited, US-China relation

Kuaishou Technology’s advertisements at a subway station in Beijing on February 3, 2021. Photo: Bloomberg.

Nasdaq tops the global league table in the first nine months, with 256 companies raising a combined US$66.17 billion, while New York was second with 80 companies raising US$47.44 billion, Refinitiv’s data showed.

Hong Kong’s 2021 IPO pipeline could rise to a 10-year high of HK$400 billion (US$51.39 billion), a slight increase from last year’s US$51.17 billion, according to the projection by Deloitte, citing a database of 120 listings. As many as 244 companies have applied to list in Hong Kong, according to data by the bourse operator Hong Kong Exchanges and Clearing Limited (HKEX).

“Not all of these companies will necessarily seek to raise funds in the fourth quarter, as market sentiments have been hit by heightened regulatory scrutiny and restructuring efforts in certain sectors of China’s economy, including new-economy companies that handle a large amount of data, education, and real estate,” said Edward Au, southern region managing partner of Deloitte China, in a media briefing on Friday.

A volatile market may not help companies to raise funds at a high valuation, he said, adding that there are unlikely to be any secondary listings by US-listed Chinese companies in the final three months of the year.

The return of Huawei Technologies’ chief financial officer Meng Wanzhou over the weekend after nearly three years in Canada on extradition trial removes at least one irritant in US-China relations and hence improve market sentiment, said Louis Tse Ming-kwong, managing director of Wealthy Securities.

“We are seeing some popular IPOs such as Tam Jai International in the market now,” Tse said. “As long as market sentiments continue to improve, we are cautiously optimistic about the IPO market in the fourth quarter.”

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