Weak IPO quarter in Hong Kong: Number of IPOs at lowest level since the beginning of the Corona crisis

• Hong Kong IPOs fall behind last year
• Multiple stressors
• Global IPO slump

Weak first quarter of 2021 IPO in Hong Kong

The IPO year 2022 has not really got going in Hong Kong so far. While 32 companies were already listed on the Hong Kong Stock Exchange in the first quarter of 2021, the number of new listings in the first quarter of 2022 was 12, according to data from auditor Ernst & Young. According to “Bloomberg”, the twelve newcomers to the stock market took in a total of 1.86 billion US dollars with the listing. This means that the income is only slightly above that of the first quarter of 2020, which was lower due to the IPO due to the corona. With the onset of the pandemic, deals were significantly impacted and postponed, the agency said.

Although the few companies that have dared to go public this year have been backed by anchor investors, the share prices of the newcomers have been under pressure since their IPO, Bloomberg also reports. For example, the permanent magnet manufacturer JL MAG Rare-Earth completed the largest Hong Kong IPO this year with 544 million US dollars, half of which was lifted by only five investors, but since the start of trading the Chinese group’s paper has already lost significantly.

Volatility, corona and tech regulations weigh on the IPO market

The reasons for the listlessness in the Hong Kong IPO business are numerous, as EY analyst Eric Minuskin explains. “In Hong Kong, IPO activity was significantly lower due to recent market volatility, a severe outbreak of omicron cases and a relatively sharp drop in local stock market indexes,” the report said. “While the number of transactions in mainland China also declined slightly, revenue rose year-on-year as three of the seven mega IPOs took place in the first quarter of 2022.”

In addition, China’s tightened measures against domestic tech companies planning an IPO abroad may have contributed to the IPO downturn that has been evident since July 2021, according to Bloomberg. According to the Reuters news agency, online companies with more than one million users have had to undergo a security check since February 15, 2022 before being listed abroad. Since March 1st, users of the companies should also be better protected by giving them easier access to their data.

Global decline in IPOs evident

According to EY, the decline in Hong Kong IPOs is due to a global IPO slump. After a record high of 2,436 IPOs was recorded in 2021, there has been a clear countermovement over the course of the year to date. “The sudden turnaround can be attributed to a number of problems, both new and existing,” Minuskin said. “These include the increase in geopolitical tensions, stock market volatility, the price correction in overvalued stocks from recent IPOs, growing concerns about a rise in commodity and energy prices, the impact of inflation and potential interest rate hikes, and the COVID-19 pandemic risk , which continues to impede a full recovery in the global economy.” In lockstep with the general IPO decline, SPAC mergers and mega-IPOs, which according to EY are raising more than a billion US dollars, also fell. This omnipresent uncertainty has led to numerous stock market debuts being postponed.

Clear environment required for Chinese tech companies

In order to ease the IPO situation in Hong Kong, the regulatory environment for IPO candidates would have to be clarified, Bloomberg analyst Sharnie Wong demands. However, the expert considers it unlikely that this will happen in the near future. “The second quarter may be too early for a strong rebound,” Wong said. However, should the market become less volatile, more stock market candidates could be lured out of the reserve again. According to Bloomberg, PAG, Hozon New Energy Automobile and Belle Fashion Group are all poised for IPOs that could raise $1 billion or more each.

Second listing in Hong Kong as a guarantee of security

According to Bloomberg, higher risks – such as a foreign listing – mean that valuations suffer for Chinese companies. Therefore, companies already traded in the US could reduce this risk by listing in Hong Kong without having to sell new shares or raise capital. The electric car manufacturer NIO, which has been listed on the NYSE since 2018 and was listed on the Hong Kong stock exchange in March 2022, has already been pursuing this strategy. According to Bloomberg, Tencent could also dare the secondary listing in the special administrative region.

However, a similar plan did not work for the Chinese Uber competitor DiDi Global: Although the Chinese government had objections, the ride-hailing service managed to make the leap to Wall Street in June 2021. In December it was then said that they wanted to say goodbye to the NYSE and instead aimed for the Hong Kong listing. However, there was opposition from government agencies, which is why the IPO plans were apparently put on hold.

Editorial office finanzen.net

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