Source: Securities Times

Hong Kong, as one of the world's important international financial centers, has become the largest IPO financing center globally seven times since 2009. However, the performance of its IPO market has been somewhat lackluster in the past two years. Nevertheless, signs of recovery in Hong Kong's IPO market have begun to appear this year: the capital markets in Hong Kong are experiencing a strong "listing wave," with many mainland companies, from technology newcomers like Horizon to industry giants like Midea, S.F. Holding, Innovent, Haitian, and Mao Ge Ping, turning their attention to Hong Kong. Some institutions predict that Hong Kong is expected to return to the fourth position globally in IPO financing this year, and may return to the top three by 2025.

"When I was in Hong Kong, I would meet three to five companies a day, this is not an exaggeration," said Bonnie Chan Yi-ting, CEO of HKEX, in a recent interview with a reporter from the Securities Times. "Many market participants and investment bankers are quite Bullish on the IPO market in Hong Kong in 2025."

In this process, regulators, investors, and companies are all working together to drive the recovery of the IPO market. A large number of technology companies are also profoundly changing the ecological landscape of the Hong Kong stock market.

The IPO market is gradually recovering.

"Recently, I have been hearing almost every day that new A-share companies are considering listing in Hong Kong," a person from a major investment bank in Hong Kong told reporters. Especially since September, the enthusiasm for Hong Kong IPOs has quickly risen, and she has received numerous inquiries from mainland companies about listing.

At a recent seminar organized by the Securities Times on the topic of listing on the HKEX, it was learned that many A-share companies and prospective listing companies are also highly optimistic about listing in Hong Kong.

Data can more intuitively illustrate the current trend of recovery in IPO listings in Hong Kong. According to a report by Ernst & Young, as of the public information statistics on November 30, 2024, there were 64 companies listed in the Hong Kong market in their initial public offerings, raising a total of 83.4 billion HKD. Compared to last year, although the number of IPOs has decreased by 6%, the financing amount has increased by 80%.

At the same time, recently, many companies have been submitting applications to HKEX, and the IPO market is gradually warming up. The official website of HKEX shows that in 2024 (as of November), there have been 123 new listings applications accepted, and as of November 29, 2024, there were also 77 listing applications submitted to the Listing Committee for consideration within 12 months. According to statistics, from December 1 to 8 alone, 9 companies submitted applications.

Investor subscription sentiment has also clearly warmed up, with 95% of Hong Kong IPO enterprises receiving oversubscriptions, an increase of 4 percentage points compared to last year; the average oversubscription multiple for IPO enterprises is 295, a year-on-year increase of 24 times.

"The shrinkage of IPOs is not a challenge unique to HKEX. Over the past two years, under challenges such as high interest rates and geopolitical issues, the global IPO market has been quite sluggish. However, I am pleased to see that this year, the Hong Kong stock market has reversed the downward trend of the past five years, with financing amounts in the first ten months of this year more than doubling compared to the same period last year," said Bonnie Chan Yi-ting. "Some relatively large IPOs, such as Midea Group Co., Ltd, raised $4.6 billion, making it the second largest IPO globally this year and also the largest IPO in Hong Kong since Kuaishou in February 2021."

Mergers and acquisitions + going overseas is an important logic.

The reasons for the warming of the Hong Kong IPO market are not complicated. HKEX has implemented a series of reforms to improve market efficiency and liquidity, including optimizing the listing review mechanism and approving measures for trading during adverse weather conditions. The China Securities Regulatory Commission has also issued five measures for cooperation in the capital market with Hong Kong, increasing the willingness of mainland companies to list in Hong Kong. In addition, Hong Kong's comparative advantages in listing thresholds, processes, and certainty have increased the willingness of A-share companies and companies planning to list to go to Hong Kong.

For companies planning to list, this is a good opportunity. In fact, mainland China has also deeply realized the importance of the Hong Kong stock market. For example, in the recent draft of the "Action Plan for Promoting High-Quality Development of Mergers and Acquisitions in Shenzhen (2025-2027)" released by Shenzhen, it is clearly stated that support will be provided for leading enterprises in eligible industries to acquire overseas symbols, through listing in Hong Kong or refinancing to improve the efficiency of mergers and acquisitions, broaden the scope of resource integration, and support enterprises in better utilizing two markets and two resources for standardized development.

Li Xin, Managing Director of the Investment Banking Department of China International Capital Corporation, stated that there are two main logics for mainland enterprises to list in Hong Kong currently: first, the company itself has financing needs due to business development, making it easier to achieve a listing in Hong Kong in the short term; second, the company itself has overseas operations or plans to expand overseas, choosing to list in Hong Kong based on business needs.

A relevant person in charge of a biotechnology company that is already listed in A-shares stated that one of the subsidiaries is considering spinoff for listing, as its early-stage R&D requires a significant capital investment. "Currently, it's not so easy for A-shares to pursue a spinoff listing, while Hong Kong has Chapter 18A, which allows subsidiaries to obtain funds more quickly for spinoff listings."

For many companies already listed on the A-share market, the internationalization strategy is an important reason for choosing to go public in Hong Kong. Many "A+H" companies’ statements are almost always related to internationalization. For example, S.F. Holding stated that the company's cash flow is currently abundant, and the core purpose of this Overseas listing is to further promote the internationalization strategy, build an international capital operation platform, enhance the international brand image, and improve the company's overall competitiveness.

A person in charge of a consumer goods A-share company stated that listing in Hong Kong is a connection point and pivot for Business to go international and capital operations to become global. A person in charge of a New energy company stated that the company is currently at a crucial stage of going global, and going public in Hong Kong can significantly enhance the company's international image. The management of Midea Group Co., Ltd, which went public in Hong Kong in September of this year, also clearly stated that the reason for going public in Hong Kong is due to the "breakthrough, convenience, and speed" of the Hong Kong stocks.

A capital markets person in Hong Kong stated that for some companies looking to make overseas acquisitions, listing in Hong Kong is also very convenient. First, it facilitates using Stocks as consideration for transactions during the acquisition process; second, the refinancing policies after listing are also very convenient, allowing quick access to acquisition funds through "flash placements."

Technology companies are taking the lead.

A distinct feature of the current recovery of IPOs in Hong Kong is that technology companies are taking center stage, with technology IPOs ranking first. According to an Ernst & Young report, among the listed companies, the proportion of technology and biomedical and health industry companies is the highest, reaching 22 and 11 respectively.

Before the reform of the Hong Kong Stock Exchange in 2018, it was mainly a market for traditional industry companies, but after the reform, the market ecology of the Hong Kong Stock Exchange underwent a tremendous change. Since 2024, a large number of technology enterprises in AI, intelligent driving, and biomedical fields, such as Nanfang Black Sesame Group, Qiniu Intelligent, Horizon Robotics, Restructured Energy, VOICECOMM, and Jiuyuan Genetics, have landed on the Hong Kong stock market.

All of this is inseparable from the continuous reform and evolution of Hong Kong in recent years. From the 18A chapter in 2018 to the later SPAC system, and the 18C chapter for specialized technology companies in 2023, the listing rules and thresholds of the Hong Kong Stock Exchange have been lowering continuously. Bonnie Chan Yi-ting stated, "Hong Kong has many years of experience and its investment group is primarily institutional. Therefore, for some relatively innovative products that may involve higher risks, Hong Kong can take the lead."

Since the first H-share Tsingtao Brewery was listed in Hong Kong in 1993, Bonnie Chan Yi-ting has been engaged in IPO work for more than 30 years. "Over the past 31 years, Hong Kong has consistently helped mainland enterprises achieve Overseas financing step by step. For example, we have experienced the listing boom of state-owned enterprises such as the 'three barrels of oil', China Mobile, China Unicom, and China Telecom, the listing boom of Banks and Insurance, the mining company's listing boom, and then the new economy company listing boom after 2018." Bonnie Chan Yi-ting said, "We have continuously focused on what support mainland’s economy needs to ensure that our financing platform meets the needs of the real economy."

"Our 18-chapter series of listing rules can be continuously developed. From 18A, 18B to 18C, as long as there are new investment themes in the country, or enterprises that want to open and develop at high quality, we will be obliged to provide the best listing rules," said Bonnie Chan Yi-ting.

Investors are gradually returning.

With the recovery of the Hong Kong IPO market, the enthusiasm of international and retail investors in the Hong Kong market has surged. Especially for some popular stocks, the subscription multiples by retail investors are often astonishing, and institutions are also eager to get a share.

For example, Jinko Electronics, which was listed on November 8, had an oversubscription multiple of over 5677, ranking second in Hong Kong's history for oversubscribed IPOs; Ubo Holdings, listed in June, had a subscription multiple of 2503; METASURFACE, listed in July, had a subscription multiple of 2480. China Resources Beverage, listed on October 23, was also wildly sought after by both retail and institutional investors, with a public offering being 234.49 times oversubscribed and an international offering being 24.47 times oversubscribed.

"China Resources Beverage was extremely popular when it went public. The most painful time for us was actually the stock allocation segment, with many customers calling to 'threaten' me, saying they were your important clients and that you must allocate more to them." A person from a large Hong Kong investment bank indicated that typically, global long-term funds would be fully allocated, but for popular stocks like China Resources Beverage and Midea Group Co., Ltd., they could only allocate at relatively low rates.

"During the market correction after October, while communicating with investors, we noticed that many international long-term investors, including some sovereign investors, began returning to the Hong Kong market." This person pointed out that objectively, the entire overseas market had been quite volatile in the past two years, and some foreign investors had withdrawn from the Hong Kong stock market to a certain extent. "But at the end of September, we saw very clear signs that they were coming back."

Many people in the Hong Kong market are very optimistic about the performance of the Hong Kong IPO market in 2025. Bonnie Chan Yi-ting optimistically stated that the Hong Kong IPO market will see a significant recovery in 2025.

According to an analysis by EY, multiple factors are currently supporting the recovery of the Hong Kong IPO market in 2025. For instance, US interest rates are entering a downward cycle, which is favorable for non-US dollar areas, including the liquidity of the market; the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange have jointly released an optimized IPO timetable, allowing for the rapid approval of qualified A-share companies; the Hong Kong Stock Exchange lowered the minimum listing threshold for specialized technology companies in the third quarter of this year, allowing more innovative companies to enter the IPO market; after the tightening of IPOs in mainland China, a considerable number of enterprises applying to list in Hong Kong will do so next year; and the internationalization strategy and overseas expansion trend of mainland enterprises are driving companies to list overseas, especially the "A+H" listing model is gaining momentum.

Some Institutions estimate that by 2025, approximately five new stocks will be listed in Hong Kong with a financing scale reaching 5 billion HKD, and it is expected that one to two major new stocks with financing amounts of about 10 billion HKD will be listed in Hong Kong. "The total fundraising amount for the year is expected to reach 120 billion HKD, with a chance to return to the top three globally."

Editor/rice