In the global race to host initial public offerings, there has been a notable laggard this year — Hong Kong.
The Asian financial hub has ranked first in IPO fundraising for four out of the past seven years. But the most recent year it did so was in 2019. And this year it has failed to even make it into the top 10 global exchanges.
For a place that used to cite its IPO rankings as a sign of its vitality as a financial centre, it has been quite a come down, even in a global financial system where the value of IPOs has fallen 70 per cent in the first five months of the year. It is a decline felt particularly hard by the territory’s bankers and financial advisers as the flow of deals in general has dried up.
One Hong Kong tycoon described the current dealmaking environment as “the worst it’s been . . . it doesn’t have that ‘boom boom boom’ all the time any more”.
Data from Dealogic show funds raised by new listings in the city are down about 90 per cent in the year to date at just $2.4bn, marking the worst half-year haul since the depths of the global financial crisis.
The stockmarket’s benchmark Hang Seng is down about a third from highs last year while technology stocks listed on the exchange have fared even worse, dropping about 55 per cent despite a recent rally by the likes of Alibaba and Tencent.
The central problem is that for most of the past decade, bourse operator Hong Kong Exchanges and Clearing has focused overwhelmingly on attracting the same disruptive Chinese internet and digital platform companies that were left reeling after an intense crackdown from Beijing.
That included the suspension in November 2020 of the $37bn listing of Ant Group, which had been set to become the world’s largest IPO, and China’s derailing of the New York listing of ride-hailing group Didi Chuxing in 2021.
Ximalaya, a podcast streaming platform, recently failed to even get enough investors on board to raise between $50mn and $100mn. The company was supposed to be one of the many Chinese start-ups that investment bankers expected to pivot quickly to Hong Kong after it was forced to scrap plans for a $500mn share sale in New York last year.
Meanwhile, almost all share offers by high-end manufacturing and renewables companies in China are going to Shanghai and Shenzhen, with mainland IPO proceeds climbing to about $35bn this year.
Bankers who forecast last year that delayed tech deals would come to market in early 2022 are now pinning their hopes on an autumn listings revival, during what is normally high season for the financial sector.
There are hopes that China might have shifted in its approach to the tech sector. In May, Liu He, a vice-premier and President Xi Jinping’s closest economic adviser, said China should better “balance the relationship between the government and the market, and support digital companies to list on domestic and foreign exchanges”, according to state media.
But this year has been anything but normal and confidence is beginning to wane. PwC, for one, began the year forecasting annual IPO fundraising could total as much as $50bn but in its handover note slashed this estimate to about $25bn, around half of last year’s total. Even that downsized target would require a 964 per cent rise in deal value from the first half, which would mark the biggest such leap in 13 years.
Reforms in January allowing special-purpose acquisition vehicles to sell shares in Hong Kong came after global interest in spac listings was drying up, and only one has since bothered to go public in the territory.
And despite HKEX’s plans for new offices in the US and Europe to promote itself as a fundraising destination, listings from outside the region are a tough sell, too. This year’s only debut from outside greater China came courtesy of Italian yachtmaker Ferretti, whose stock has tumbled nearly 15 per cent from the price of its IPO in March.
When pressed, HKEX chief executive Nicolas Aguzin told the FT in May that the exchange had a “strong” pipeline of more than 200 companies waiting for market conditions to improve before going public: “We’ve never had a downturn that lasts forever — they will list.” But Aguzin has been pointing to that same clutch of companies in the queue for almost a year.
If a thaw is to come, new listings are more likely to hail from the strategic sectors that Beijing supports. As with so much in Hong Kong, the city’s IPO market must increasingly take its direction from the mainland.