Global stock markets saw initial public offering activity break records in 2021.The picture is not quite the same in 2022: A convergence of Covid-19 restrictions, geopolitical tensions and rising interest rates have led to weaker stock markets and economic uncertainty, resulting in a dramatic slowdown in IPOs.
In the first half of 2022, 630 deals around the world, down 46% on the previous year, raised $95.4 billion, down 58%, according to PwC.
While Bloomberg data shows that Asia has fared better than other regions such as Europe and the US, this is mainly because large deals in China and South Korea have helped listings in the region account for almost 60% of global volumes.
Asia as a region may be showing some life, but, according to Refinitiv data, Southeast Asia is lagging. It accounted for just $2.38 billion worth of IPOs in the region so far compared to $6.1 billion at the same stage last year.
In 2019, Hong Kong was the world's top IPO market, but has failed to crack the top 10 in 2022, with just 22 new primary listings, marking a 53% decrease from 2021. In the year to date, Hong Kong IPO fundraising has fallen 92%. At just $2.6 billion (HK$17 billion), the sum it raised in the first half was the lowest for the same period since 2009 according to PwC.
This result has led to PwC slashing its forecast for takings from Hong Kong primary listings this year to between $22.93 billion (HK$180 billion) and $25.48 billion (HK$200 billion), which is half of what the accounting firm was projecting at the start of the year.
However, several mid- to large-sized deals for the second half of the year are in the pipeline, with over 100 listing applications having been filed with the Hong Kong Stock Exchange (HKEX). If they come about they may revive the sluggish IPO market in the city. China’s regulators may also help to fuel a resurgence if they clarify the rules for Chinese share offerings abroad.
Against this backdrop, AsianInvestor asked fund managers and financial experts for their outlook on the IPO market in Asia, and whether IPO activity in Hong Kong will reach 2021 levels in the second half of 2022?
The following responses have been edited for brevity and clarity.
Kenneth Ho, head of equity capital markets
Amid the challenging market conditions in the first half of 2022, some companies have considered alternate timetables for their IPO. In fact, over 100 listing applications have been filed to HKEX, and they are ready to come to market once we have more clarity on previous uncertainties and gain more solid footing to improve sentiment.
With the homecoming of US-listed Chinese companies and reform allowing special-purpose acquisition vehicles as an alternative fundraising source of deals into the Hong Kong capital market, we believe IPO activities, both IPO deal numbers and fundraising amount, will pick up gradually in the second half of this year. The IPO market will regain momentum with the improvement of sentiment in the general market and other macro supportive measures.
Investor appetite for new issuers, in particular companies with long-term growth prospects and solid brand positioning, could find more investor support if the market outlook becomes clearer. Listings from technology, media, and telecommunications (TMT), and life sciences and healthcare (LSHC), are likely to be the highlights in the second half of 2022.
Bonnie Yung, partner, corporate & securities practice
We expect that new listing activities in Hong Kong will gradually start to recover in the second half of 2022 considering the improving pandemic situation in Hong Kong and China. With the easing of the Covid restrictions and recovery of the domestic economy, companies in mainland China are expected to resume their aspiration to go public in the second half of 2022.
In light of the enhanced measures implemented by HKEX to allow Greater China companies without weighted voting right (WVR) structures to seek secondary listings in Hong Kong and offer greater flexibility to issuers seeking dual-primary listings, it is expected that there will be an increasing number of homecoming listings of US-listed Chinese companies in Hong Kong, which will also help rejuvenate the listing activities in Hong Kong.
We understand that the Securities and Futures Commission (SFC) and HKEX are reviewing the Main Board Listing Rules to examine the revision of the listing requirements to cater for the listing of large-scale advanced technology enterprises in Hong Kong, which may further boost the Hong Kong IPO market by widening its base of potential listing applicants.
Although the rebound in the Hong Kong IPO market may not be a full resurgence to 2021 levels due to continuing global geopolitical and economic uncertainties, we are optimistic in its full recovery in the long run.
David Liu, regional managing director APAC, growth team
While there is indeed a slowdown in the global IPO markets due to various factors (i.e. geopolitical tensions, Russia/Ukraine conflict, continued Covid impact in certain markets, valuations, inflationary risks, post-IPO performance, etc.) and subsequently also a slowdown in Apac. However, the decline has been less in Apac in comparison to the global market, according to Dealogic.
Globally, the number of IPOs had declined by 53% globally and proceeds have declined by 72% from 2021 to 2022 through June 14, 2022 during the same period. In Apac, the number of IPOs had declined by 31% and proceeds by 26% from 2021 through June 14, 2022 during the same period.
Also according to Dealogic, data through June 15, 2022 reflects that the Shanghai's STAR Market has been very active thus far, with $14.37 billion raised in 46 deals in comparison to Nasdaq's $12.61 billion raised from 98 deals. However, Shanghai's STAR Market is down this year (44% down from same time last year) compared with last year.
With the border restrictions easing across parts of Asia and talks of exploring an easing of Covid restrictions in Hong Kong, we are hopeful to see positive traction across the markets in the second half of this year.
Shi Qi, managing director, head of equity capital markets
Currently, there are still strong IPO pipelines in the Hong Kong market.
A number of companies have been continuously working on their listing plans, waiting for a favourable market window to reach ideal valuations, especially for those who have closed several rounds of private-equity financing in recent years. Meanwhile, there are also other companies that have decided to launch with a lower offering size to complete the first step of securing the listing status.
For the time being, there are multiple international and domestic factors exerting influences on the Hong Kong market. If any of those start to improve in the future, the secondary market would take the lead to rebound and market sentiment would soon be transmitted to the primary market, bringing opportunities to IPOs on the shelf.
Lipton Li, capital markets partner
IPOs in Hong Kong will continue to be impacted by the pressures of regulatory development and a potential US economic downturn.
As a result, it will be difficult for Hong Kong IPO activity to return to the 2021 levels in 2H 2022. Having said that, we believe there are a few green shoots in the Asia market. We see a rush of issuers targeting a window of opportunity in Q3 before the severity of a US economic downturn becomes known in Q4. Issuers that have a Southeast Asia story will be more insulated by the market volatility because of the consistent growth and reducing political risks associated with these countries.
We also see mainland Chinese companies planning to issue GDRs in European markets really gaining momentum. There is continued interest and ongoing regulatory development in both China and Europe to set up relevant frameworks which will further facilitate the connection between capital markets in China and Europe, and we anticipate continued growth in this area.