Hong Kong IPOs on the rise
Opinion 3 minute read

Hong Kong IPOs on the rise

07 September 2021

Global pandemic has not deterred Chinese enterprises from seeking growth capital to fund expansion domestically and internationally.

With the summer drawing to a close, Hong Kong’s capital market will be hard at work again, with the number of initial public offerings (“IPOs”) and funds raised predicted to be at record-highs again for 2021. 

While the number of newly listed companies declined for the first seven months of 2021 (66 companies versus 88 for the same period last year), the total funds raised increased significantly from HK$136.5m to HK$253.2m; an extraordinary achievement given the global pandemic.

During the latter part of the summer, we witnessed a selloff of Chinese technology and education stocks, both in the US and Hong Kong markets.  Historically, the market has been more volatile in the US, particularly in the early years of last decade, when a large number of Chinese listed companies were exposed by short-sellers with questionable operations and financials, such as those by Muddy Waters Research.

This is starkly contrasted to the situation in Hong Kong, which enjoys global market participation (institutional, professional and retail) from investors who are knowledgeable about the mainland in all respects, from government policy to the general behavior of Chinese consumers and netizens.

However, we have also seen large selloffs in Hong Kong in these sectors, including leading industry players such as Tencent, Alibaba, Meituan, and Xiaomi.  Although there have been significant stock declines before, such as Tencent in 2018, when there were new government initiatives on the approvals of new games), we have not seen such broad selloffs in recent years.

Nonetheless, the peculiarity of these listed Chinese companies is that they are still broadly Chinese companies, with the majority (if not all) of their operations firmly entrenched in mainland China.  As a result, any change in rules, regulations or government policy may have far-reaching impact, which is fundamentally consistent for all companies operating in a single country.

Longer-term, Chinese companies will continue to embark on international expansion, and it is safe to say that the performances of future Chinese enterprises (national champions or otherwise), will be considerably less impacted by any one country or event.  We have already seen Chinese companies venture abroad in the last 10 years or so, and many began their journey in Hong Kong.  While there has been some scaling back in recent years, this trend will inevitably continue as Chinese companies seek to grow with a dual-pronged strategy of developing the international markets, but also the critically important domestic market.

Despite the recent set-back in performance of some Chinese listed companies, we still see a very healthy pipeline in the IPO market with a lot of interest in fund raising via the Hong Kong stock exchange.  Similarly, there is a very clear and noticeable trend of market participants shifting their interest and focus from the US back to Hong Kong, and even the domestic Chinese market, which has performed well in the past one or two  years.  Large US listed Chinese technology companies are returning to Hong Kong, including Alibaba, JD.com, Netease, raising billions of dollars in their secondary/dual listings via Hong Kong. In 2021, this trend continued with Baidu, Bilibili and Trip.com making their way back “home”.

With the pandemic still wreaking havoc, there has been a substantial increase in the number of life sciences and biotech companies seeking listings and raising capital in Hong Kong, which had historically been a mainstay of the US market.  While there are a lot of factors influencing IPO location, the relaxation of the Hong Kong’s listing rules towards early-stage and pre-revenue biotech companies (often referred to as 18A), has been instrumental to the growth and development of this sector in Hong Kong.

According the data available from the Hong Kong Exchanges and Clearing Limited (“HKEx”), there are more than 50 healthcare and biotech listing applicants as at June, 2021, 19 of which are pre-revenue biotech companies pursuing an 18A listing.  For the seven months ended July, 2021 (essentially marking the third year anniversary of HKEx’s New Listing Regime), there were already 8 biotech and life sciences companies listed (under the 18A listing rules), versus 14 for the entire 2020.  With HKEx’s push in this sector, we will likely see another record year of companies seeking to make use of this feature in the Hong Kong listing rules.

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Written by

Kenneth Lee

Director & Head of Global Entity Management

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