'New Economies' IPOs to boost Hong Kong exchange in 2018

15 January 2018 Consultancy.asia 5 min. read

The Hong Kong IPO market is tipped for a bright year ahead according to forecasts from Big Four rivals KPMG and PwC, with changes to listing regulations and the emergent ‘new economies’ sector being the expected drivers.

Hong Kong’s IPO market, after a relatively flat 2017 in terms of funds raised (a year which saw the Hong Kong exchange HKEx cede its top ranking and slip below Shanghai’s SSE for the first time), is set for a bumper return in 2018 according to projections from competing professional services firms KPMG and PwC – with the latter predicting the market will reclaim its premier mantle from the rival NYSE.

While 2017 saw a record-breaking 174 new IPO listings on the Hong Kong boards (of which 80 were on the Main Board), including a record high for IPO’s from overseas companies, the total funds raised dropped by 34% on 2016 proceeds to approximately HK$128 billion; the lowest haul since 2012. This decline, which has been blamed,  in part, on the lack of mega-sized listings – with some large-scale offerings rescheduled for this year – has seen the HKEx slip considerably in the global end-of-year rankings. 

IPO Performances of Top Stock Exchanges Globally

Of the funds raised on Hong Kong’s Main Board over the past year, financial services companies continued to crowd the list, commanding the top four spots and  53% of the overall take. Among them were Guotal Junan Securities and Zhongan Online P&C Insurance, cumulatively accounting for over HK$20 billion of last annum’s total, alongside a further three financial services companies, which raised above HK$5 billion each.

Delving deeper, however, the 53% of total Main Board proceeds from the financial services sector was down from 71% in the previous year, with new listings dropping 21% and total funds raised slashed by 50%. Further, around one third of the sector’s funding total was attributable to contributions from ‘new economy’ listings – such as second-placed Zhongan Online P&C Insurance and the fifth-placed Yikin Group – as the industry continues to transform from traditional entities toward the fintech market. 

All in all, four of the top eight largest IPOs for the year belonged to companies of the ‘new economy’ – those with a focus on technology and the online domain – with Zhongan Online P&C Insurance and the Yikin Group joined by China Literature (Tencent’s online publishing unit) at HK$8.3 billion raised and gaming company Razer with HK$4.1 billion; helping to drive the telecom, media and technology (TMT) sector up from a 3% to 16% year-on-year share of the total market.

In addition, the nine tech and internet IPOs listed were oversubscribed,  on average, by 367 times, as compared to 2.2 times for the big financial service listings, indicating, according to Maggie Lee, Head of Capital Markets Development Group, Hong Kong, KPMG China; ‘‘strong investor appetite for these (new economy) companies (which) focus on technology and internet-related businesses, including e-sports, online automobile financing, online insurance and e-books.”

Top 10 Largest Hong Kong IPOs

Benson Wong, Entrepreneur Group Leader for PwC Hong Kong, meanwhile predicts that up to 40% of the IPO fundraising in 2018 will fall to new economy companies. “If you take a look back for 2016, the new economy companies in terms of fundraising contributed only three per cent of the fundraising. In 2017…. it contributed around 29 per cent," Wong said. “We expect in 2018, it may go all the way up to 30 to 40 per cent as we expect more new economy companies are now considering Hong Kong as their IPO destination."

The year ahead

A major factor in these projections are the planned changes to the Hong Kong exchange’s listing regulations – considered possibly the biggest overhaul in decades – to enhance flexibility and cater to a dual-class share structure, which is expected to further attract new economy enterprises and jumbo tech firms in the market’s arm-wrestle for Chinese listings with the NYSE.

KMPG’s Lee contends: “The ongoing discussion of listing reform, which may result in changes to the listing rules to attract ‘new economy’ companies, innovation and technology companies, as well as those with non-standard governance structures to list in Hong Kong, will increase the attractiveness of Hong Kong as a IPO destination.” And according to PwC; “If all goes to plan, it is expected that the first IPO under the new dual-class structure will be in the second half of 2018”.

Top 5 Sectors – By Funds Raised

With the Hong Kong rebound to be further supported by rescheduled and potential mega-sized listings (such as smart-phone maker Xiaomi, which, with a possible valuation of US$50 billion, could become the third largest technology IPO in history behind Alibaba and Facebook), both tax and accounting advisory firms are forecasting the market to exceed HK$200 billion this year.

PwC, however, have gone the one step further to declare that Hong Kong will reclaim its crown as the international leader for IPOs; “Hong Kong will once again to be the world’s largest IPO market in 2018, with an expected total fundraising between HK$200 to 250 billion, supported by rescheduled mega-sized IPOs from 2017 and a proposed dual-class share structure,” the firm said in a statement.