EY, an international renowned accounting firm, released its report on the IPO market in mainland China and Hong Kong for the first half of 2024 on Thursday. The report pointed out that there were signs of recovery in the Hong Kong IPO market, which may reach a turning point in the near future.

According to the report, due to the continued efforts of central banks to control inflation and keep interest rates high, the cost of capital remains high. During the first half of the year, IPO activity continued to slow down. A total of 532 companies worldwide went public, raising a total of $51.7 billion. Compared with the same period last year, the number of IPOs and the amount of capital raised decreased by 15% and 17%, respectively.

Correspondingly, IPO activities in mainland China and Hong Kong also slowed down in sync, and the number and amount of funds raised in the Greater China region fell to their lowest levels in recent years, accounting for 14% and 12%, respectively, but the main reason was the tightening of the A-share IPO market.

Hong Kong: Signs of IPO market recovery are emerging.

According to the EY report, as of June 12, 2024, a total of 28 companies in the Hong Kong market had their initial public offerings, raising a total of HK$12.1 billion. The number of IPOs and the amount of funds raised decreased by 3% and 32%, respectively, from the same period the previous year.

In the first half of 2024, the average amount raised through IPOs on the Hong Kong Stock Exchange was only HK$431 million, a 30% decrease year-on-year, and the scale of IPOs further declined.

EY analysis stated that due to high interest rates and the slowdown in macroeconomic growth, enterprises have been restrained in the number of shares issued and the amount of funds raised. In the first half of the year, IPOs were mostly small and medium-sized projects that raised less than HK$2 billion, with only one IPO raising more than HK$2 billion. However, the phenomenon of shrinking IPO issuances improved slightly year-on-year.

Although the overall IPO issuance pace on the Hong Kong Stock Exchange in the first half of the year was still slow, there were also some signs of recovery, such as the gradual recovery of new stock subscription sentiment and the emergence of profitability effects.

It is worth noting that the Hong Kong stock market rebounded in the second quarter, especially in May, with various market indicators such as liquidity gradually improving and investor sentiment improving. The number of IPOs and the amount of funds raised in the second quarter increased by 33% and 52%, respectively, from the previous quarter.

In addition, 92% of main board listed companies recorded oversubscription in the first half of the year, an increase of 6 percentage points from the previous year. The average oversubscription of the main board was 196 times, compared to only 8 times in the same period last year.

On the other hand, in the first half of this year, the first-day broken rate of new Hong Kong stocks fell to a five-year low, with 25% of new stocks breaking on the first day, a decrease of 27 percentage points year-on-year. The average first-day return of new Hong Kong stocks in the first half of the year was 24%, higher than 1% in the same period last year.

The technology content of Hong Kong Stock Exchange IPOs continues to increase.

In terms of structure, mainland Chinese companies continue to dominate the Hong Kong IPO market with 89% of the total number of companies and 95% of the total amount raised.

"Among the Mainland companies that have chosen to list in Hong Kong, some have been planning for a long time, while others have chosen to 'divert' to Hong Kong due to the current regulatory environment," said Liu Guohua, Head of Financial Accounting and Consulting at EY Greater China.

During the period, the top ten IPOs in Hong Kong raised a total of HK$8.73 billion, accounting for 72% of the year's total fundraising. In terms of specific industries, the number and amount of funds raised by technology companies in IPOs ranked first, with 5 out of the top 10 IPOs being technology companies. During the period, the Hong Kong Stock Exchange also welcomed the first special-purpose technology company to be listed in accordance with Chapter 18C regulations.

Looking forward to the second half of the year, EY stated that in terms of Hong Kong Stock Exchange IPOs, the China Securities Regulatory Commission issued the "5 Measures for Capital Market Cooperation with Hong Kong" in April to support top domestic enterprises in raising funds in Hong Kong. The pace of Mainland companies going public in Hong Kong is accelerating, and the amount of funds raised from IPOs is expected to increase.

Liu Guohua also said: "The number of Mainland enterprises that have initiated the IPO process in Hong Kong has increased significantly since March and April of this year. We believe that the number of companies applying in the third quarter will increase significantly."

He pointed out that in addition to seizing the window of opportunity for Mainland companies to go public in Hong Kong, the Hong Kong government and regulatory agencies will continue to improve the competitiveness of the Hong Kong market, including improving stock market efficiency and liquidity, as well as attracting enterprises from the Middle East and Southeast Asia to list in Hong Kong, which will also play an important role.

Edited by Jeffrey