Hong Kong is widely considered to be the third most influential financial market in the world. It offers a wide range of financial products, straightforward regulations, and sufficient international capital. Virtually every single global financial institution is fighting for clients in Hong Kong that come from all over the world. Now, with the first half of 2018 already in the past, is an excellent time to assess the Hong Kong IPO market.
There was some speculation that Hong Kong was about to go through some tough times. This was down to a dominant Chinese market aggressively attracting capital away from Hong Kong and rising trade tensions between the USA and the rest of the world, jeopardising the bedrock of Hong Kong’s economy; global trade. The Hong Kong dollar has been losing its position to the currency of another Asian Tiger, Singapore. Does Hong Kong have a robust response to these challenges?
Luckily for the IPO industry in Hong Kong, the Chinese financial market regulator has recently performed yet another cycle of tightening its rules. Now preliminary IPO negotiations are heavily regulated which is driving down valuations across the Chinese mainland markets. According to Yicai Global, company valuation as a principal measure of exit value is vital, and many startups that are listed on the National Equities Exchange and Quotations (NEEQ) in mainland China are strongly considering cross-listing on the Hong Kong stock exchange. Moreover, NEEQ has joined a mutual memorandum with HKEX, which has allowed companies listed on NEEQ to be qualified for “NEEQ + H-share” listing model. According to the Yicai Global who has invested in startups in China, their initial goal was to sell for profit their investments listed solely on NEEQ. However, now they are preparing for the companies’ IPO in Hong Kong to lock in additional profit.
Chinese IPO Regulations
In the first four months of the year 2018, CSRC (China Securities Regulatory Commission) has rejected 50% of IPO applications. Thus, by listing in Hong Kong companies get to enjoy a high-growth Chinese market and the flexibility offered by the Hong Kong Stock Exchange. Hong Kong remains an attractive IPO location for successful Chinese startups.
Judging from the numbers above, Hong Kong currently comes fourth in the world IPO race. Even though Hong Kong had a relatively slow start in 2018, a handful of Chinese companies are expected to roll out in the second half of 2018. Xiaomi just rolled out its own public offering, and two more big launches are on the way. E-commerce platform Meiutan-Dianping and taxi service Didi, which has recently acquired Uber’s Chinese operation, are both planning to float on the Hong Kong exchange. Both of them are expecting to raise over $5bn.
More Traditional Launches
Besides high-growth internet companies, more established players are ready to engage in equity raising activities in Hong Kong. China Tower, a mobile service provider, and Sinopec Marketing, a subsidiary of China Petroleum and Chemical, are both planning offerings in 2018. It is expected that, similarly to the internet IPOs, both of them will be able to raise over $5bn. Adding together only these four most prominent IPOs, the Hong Kong exchange can expect to attract $20bn to its value.
The direct access to Chinese capital market explains Hong Kong’s long-lasting success. Clever collaboration with mainland stock exchanges, such as the Stock Connect programme and memorandum of understanding with NEEQ, adds another favourable dimension to the overall investment climate. Despite fierce competition, Hong Kong remains a prominent stronghold of both the global and Asian financial sector. All financial enthusiasts will surely be watching closely, to see how the Hong Kong IPO market evolves in the second half of the year.
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