How the Hong Kong IPO market is performing in 2017

Deloitte expects the HKEX to move up into third place in terms of the IPO proceeds

HONG Kong is expected to complete new listings for 106 companies raising about HK$85 billion (US$10.90 billion) by September 30 2017, compared with 71 initial public offerings (IPOs) raising HK$134.3 billion in the same period last year, according to the Deloitte China review released on September 21.

This represents an increase of 49% in the number of new listings, but a drop of 37% in the IPO funds raised year-on-year. The surge in the number of IPOs on the Growth Enterprise Market (GEM) and the overall decline in offering scale of the mega IPOs contributed to this year's phenomenon.

With such a performance, the national public offering group at Deloitte expects the Stock Exchange of Hong Kong to move up into third place in terms of the IPO proceeds race behind the New York Stock Exchange (NYSE) and the Shanghai Stock Exchange (SSE) by the end of September 2017.

At the same time, for the year-to-date to the end of the third quarter, the A-share IPO market is likely to present a remarkable 177% increase in the number of new listings from 126 to 349 with proceeds leaping 128% to175.9 billion yuan (US$26.70 billion) from 77.2 billion yuan.

As larger issuers continued to take the main board as a listing venue, the SSE is expected to remain the largest Chinese IPO market raising more funds (105.3 billion yuan) than its Shenzhen peer (70.6 billion yuan).

Despite the vibrant performance from Hong Kong, Shanghai and Shenzhen, the NYSE took a firm lead in IPO proceeds raised by end of this third quarter due to three mega IPOs during the first six months of this year. With the emergence of more large offerings, Hong Kong is anticipated to be able to maintain the third position over Shenzhen, which is primarily dominated by smaller offerings.

With a pipeline of more than 180 companies that have submitted IPO applications, Deloitte forecasts Hong Kong can readily conclude with 140-150 IPOs by the end of the year. However, the firm's analysis indicates that the attainment of a level of IPO proceedings of about HK$130 billion to HK$150 billion for 2017 is still subject to factors, including favourable global macroeconomic conditions such as expectation over a potential delay in the timetable of US interest rate hikes, US tax reform and China’s 19th Communist Party Congress, and whether another huge IPO is completed before the end of year.

However, the impact of the Belt and Road Initiative and the high overall market valuation is likely to lure more overseas infrastructure and property-related companies and international businesses to explore listing opportunities in Hong Kong.

As for the outlook of China’s new listing market, the trends that were observed in the previous quarters are likely to be maintained going forward. These include the dominance of small and medium manufacturing, and technology companies in terms of the number of upcoming new listings, and the fast pace of IPOs under the existing regulatory regime.

Deloitte, therefore, anticipates China to finish 2017 with about 420 to 480 IPOs raising about 220 billion yuan to 250 billion yuan.

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