Chinese stock exchanges could build on their global lead as the biggest hosts for IPOs in 2023, helped by relaxed listing rules and upcoming mega deals.

Shanghai Stock Exchange and Shenzhen Stock Exchange together hosted 136 IPOs in the first half of 2023, through which companies raised $29.67 billion, nearly half of the global aggregate, according to S&P Global Market Intelligence data. In comparison, the two biggest exchanges in the world helped 151 issuers raise $34.82 billion in the first half of 2022.

Globally, too, IPO activity has stayed subdued in the first half of the year as companies evaluate their growth options amid high interest rates and inflation. A total of 661 IPOs raised a combined $60.84 billion in the first half, compared with $98.88 billion raised via 867 IPOs in the same period of last year, the data show.

Leg up

IPO activity in mainland China will get a leg up in the second half as the registration-based system for such transactions, a major reform over the previous approval-based system, was extended across the mainboards in February, following a trial with relatively smaller markets such as the Science and Technology Innovation board (STAR) of Shanghai, the ChiNext board of Shenzhen and the Beijing Stock Exchange.

The stock exchanges, instead of regulatory authorities such as the China Securities Regulatory Commission, will now assume greater responsibilities of reviewing IPO applications. Under the previous system, companies seeking to launch an IPO had to undergo a strict vetting process by the regulators and needed to fulfill more conditions before approaching the market.

The registration-based system is "providing clearer rules and higher requirements from industry and technology content dimensions," said Jacky Lai, EY Hong Kong Assurance Partner, adding, "establishing a sustainable business with a strong foundation is integral to a successful IPO."

The total funds raised in 2023 could surpass the previous year as IPO activity gathers pace in the second half, helped by a revival in business activities and government support for the economy, Deloitte said in a June 19 conference.

"There are more than 1,000 IPO candidates in the pipeline, which is a fairly high level compared to the historical range of 700 to 1,100," said Louis Lau, a partner in the capital markets group at KPMG. Manufacturing and technology will remain center stage in the second half in China, helped by government support for these sectors, Lau said.

Chinese authorities have announced a number of steps to boost economic growth, which fell short of the government's aim for this year in the first quarter. Gross domestic product grew 4.5% year over year in the first quarter, versus the government's goal of around 5% GDP growth in 2023. Growth in 2022 slumped to a decades-low pace of 3.0%, compared with the 5.5% goal.

Deal pipeline

The proposed IPOs of Syngenta Group, one of the world's largest agricultural technology firms, and China Huadian New Energy Development Co. Ltd., the renewables arm of state-owned power generator China Huadian Corporation, were among 11 potential deals that passed the review by the listing committee of the Shanghai Stock Exchange, according to Huaan Securities, an Anhui-based brokerage firm.

Syngenta's IPO could raise 65 billion yuan, or $9 billion, making it the biggest IPO in the world in 2023 and the fourth biggest in China's history, according to Huaan Securities. China Huadian New Energy could raise 30 billion yuan.

Johnson & Johnson's consumer health arm, Kenvue Inc., had the largest IPO globally in the first half, with $4.40 billion raised through its listing on the New York Stock Exchange, according to Deloitte. The consulting firm expects at least 430 new listing in Chinese exchanges to raise no less than 620 billion yuan throughout 2023, with 120 listings and 240 billion yuan on the STAR board.

Hong Kong moving slower

Fundraising in Hong Kong declined to a 10-year low of HK$17.8 billion in the first half, according to Deloitte.

"Once the US Fed can indicate clearly when the interest hike cycle will end and China can introduce more economic stimulus measures, we expect the Hong Kong IPO market to re-activate, driving a repositioning of funds' investment strategies to Asia's high-growth regions like China," said Edward Au, Southern Region managing partner at Deloitte China.

Expecting little momentum in the Hong Kong IPO market until the fourth quarter, Deloitte cut its 2023 forecast on the number of deals and funds raised by 9.1% and 21.7%, respectively, from its estimates six months ago.

As of July 13, US$1 was equivalent to 7.14 Chinese yuan.