China is set for another strong year for initial public offerings helped by a still-accommodative monetary policy and a regulatory push to make it easier for quality companies to access equity capital.
The Shanghai Stock Exchange and Shenzhen Stock Exchange, the main venues for listing in mainland China, topped the global IPO league table in 2022 with 404 companies raising US$78.67 billion, according to S&P Global Market Intelligence data. Equity fundraising in the U.S. fell sharply last year, dragging the global IPO total to nearly half the amount in 2021.
"While we expect Chinese stock exchanges to excel in 2023, especially as COVID-19 and travel restrictions lift, we would hope for a more favorable environment for fundraising generally in 2023," Christopher Ma and Claudia Yiu, Hong Kong-based partners at law firm Simmons & Simmons, told S&P Global Market Intelligence in an email.
Rough year
Global equities markets had a rough year in 2022 with aggressive rate hikes and fears of recession dragging key benchmarks, including the S&P 500 and Nasdaq Composite, lower. The number of IPOs globally fell to 1,678 in 2022, compared with 3,261 in the prior year. The total amount offered in those IPOs fell to $179.73 billion, from $626.56 billion in 2021, according to S&P Global Market Intelligence data.
The Chinese market was an outlier, as the central bank kept its monetary policy loose to support the economy, which was undermined by the pandemic, and weakness in the real estate sector. Monetary conditions remain easy and liquidity is higher, which, analysts said, would keep mainland China's IPO market active this year.
"There are currently nearly 1,000 companies waiting for A-share IPOs, which will keep the IPO activity elevated," Paul Go, EY's global IPO leader, said. A-shares refer to the stocks of mainland companies listed on Shanghai or Shenzhen exchanges. The accelerated vetting process and the full implementation of the registration system could enable more companies to expedite their IPO processes, Go said.
The A-share issuances of China Mobile Ltd. and CNOOC Ltd. ranked first and second in the 2022 China IPO league table.
In 2023, companies that produce new and unique products and services are expected to continue driving listing on the Shanghai STAR Exchange, Go said.
The registration-based system and more flexible listing rules are among factors favoring IPO activities in mainland China, said Louis Lau, a partner of Capital Markets Advisory Group at KPMG China. Opening borders and lifting many COVID-related measures would provide a more favorable environment for enterprises, Lau said.
Hong Kong market stirring
With a solid pipeline of companies planning to list in the year ahead, the Hong Kong IPO market is also expected to continue its momentum. Hong Kong ranked fourth globally in 2022, thanks to the H-share listing of China Tourism Group Duty Free Corp. Ltd. and Tianqi Lithium Corp.
The Inter-Connected Mechanism, which provides easier access to mainland investors, could attract large international issuers, said Edward Au, China Southern Region managing partner at Deloitte. Hong Kong officials visited the Middle East during Feb. 4 and Feb. 11, and media reports later said the delegation sought to attract Saudi Arabian Oil Co., commonly known as Saudi Aramco, to list in the special administrative region.
Hong Kong hosted IPOs of 10 companies and one investment vehicle in January, and has 67 active applications in process, according to information on the bourse operator's website.
Slower interest rate hikes and the lifting of COVID restrictions in the mainland is gradually easing the uncertainty in Hong Kong, KPMG's Lau said. The number of IPOs in January is already higher than the average of four per month in the first half of last year, Lau noted.