Mainland China and Hong Kong stock exchanges are set to record their most active year since 2011 in terms of proceeds, according to a new report. The Shanghai and Hong Kong bourses, which saw a surge in fund-raising activity, were key drivers behind the 23% rise in proceeds raised in the global IPO market in 2020, despite continuing challenges due to Covid-19.
In terms of global ranking by expected IPO proceeds for 2020, the Hong Kong Stock Exchange (HKEX), Shanghai Stock Exchange (SSE), and Shenzhen Stock Exchange (SZSE) will claim the second, third and fifth places respectively, with total funds raised reaching US$50.3 billion, US$49.9 billion and US$18.5 billion respectively, according to KPMG’s 2020 review of the Mainland China and Hong Kong IPOs and other market trends.
Paul Lau, partner, head of capital markets at KPMG China, is optimistic about 2021: “Despite prevailing uncertainties marked by the Covid-19 outbreak as well as political, social and economic concerns, the global IPO markets remained resilient and ended strong in 2020. As businesses gradually adapt to the new normal and with the rollout of Covid-19 vaccines, there is a good chance for the global economy as well as the capital markets to rebound in the coming year.”
Funds raised in the Shanghai and Shenzhen stock exchanges rose 82%, compared with 2019, recording a combined 461.0 billion yuan (US$70.4 billion) from 383 new listings. The strong performance is fuelled by STAR Market, which has accounted for 47% of the funds raised in the A-share market during the year.
The Hong Kong Stock Exchange has raised HK$389.9 billion (US$50.3 billion), up 24% compared with the previous year, from 140 IPOs. The increase is driven by homecoming listings, amounting to about 34% of the funds raised.
Shanghai and Hong Kong secured the top three largest global IPOs during the year. Semiconductor Manufacturing International Corp. raised US$7.5 billion on the SSE’s STAR Market, followed by JD.com on the HKEX with US$4.5 billion and Beijing-Shanghai High Speed Railway in Shanghai with US$4.4 billion.
China has demonstrated its resilience as it continues its recovery from the Covid-19 pandemic, according to the report. The A-share market’s strong showing this year is driven by stabilizing economic conditions and positive factors such as accelerated capital market reforms.
Louis Lau, partner, capital markets advisory group, at KPMG China, notes: “The A-share market had a deepened capital market reform with the expansion of registration-based IPOs this year amid China’s focus to foster a multi-level capital markets system. This would further increase market inclusiveness and coverage, assisting companies of different sectors to meet their funding demands, and further bolstering the real economy as a whole.”
The mainland’s IPO pipeline remains strong, recording over 800 active applicants as of December 6, boosted by the number of applicants in the registration-based STAR Market and the ChiNext board. In terms of sectors, technology, media and telecom as well as advanced industrials comprise over 60% of the pipeline and are expected to remain the key driving force in the market.
In Hong Kong, the ecosystem has further cultivated the development of and fund raising for healthcare and life sciences companies, with the city already boasting the largest in Asia and the second-largest biotech IPO market in the world, according to the report.
During the year, 22 healthcare and life sciences companies have been listed, raising a total of HK$98.8 billion, contributing 25% of the funds raised. Out of these companies, 14 pre-revenue biotech companies were listed under Chapter 18A, raising an aggregate of HK$41.1 billion.
“The trend of homecoming and biotech listings further stimulates the change in the composition of Hong Kong’s market, moving from the traditional base of real estate and financial services to a base of new economy listings, such as technology, biotech and e-commerce,” KPMG says.
The report notes a growing interest from issuers and investors for homecoming listings as evidenced by nine US-listed Chinese companies that have completed its secondary listings in Hong Kong this year.
Moreover, the bourse announced a plan to normalize the eligibility requirements for Greater China issuers without weighted voting rights (WVR) structures to secondary-list in Hong Kong under Chapter 19C, proposing to revise the minimum market capitalization requirement to US$400 million, or HK$3 billion, and remove the “innovative company” requirement.
The central government, meanwhile, supports further deepening mutual access between the mainland and Hong Kong markets. Pre-profit biotechnology companies listed in Hong Kong and stocks listed on the STAR Market that meet certain prescribed criteria will be included in the scope of eligible securities under the Stock Connect.
