KPMG predicts solid pipeline to drive year-end uptick in Hong Kong IPO market after positive signs late in third quarter

Healthcare/ Life Sciences sector remains strong following positive sentiment from last year; The STAR Market drives A-share IPO market growth in the third quarter
2019-09-19 16:09 1547

HONG KONG, Sept. 19, 2019 /PRNewswire/ -- The U.S, Mainland China and Hong Kong have continued to be key driving forces of the global IPO market in the first three quarters of 2019. According to KPMG's latest review, the A-share market in Mainland China has achieved growth compared to the same period last year as a result of the introduction of the new STAR Market, while Hong Kong's IPO market remained stable with a strong pipeline especially from the Infrastructure/ Real Estate, TMT, Healthcare/ Life Sciences and Financial Services sectors. Amid global economic uncertainties, some mega-sized companies this year have had difficulties listing, faced with a lower offering price, a reduced offer size or a need to postpone. However, based on the Hong Kong IPO market's solid pipeline, KPMG predicts an uptick in listings by the end of the year.

As of 13 September 2019, in terms of global ranking by IPO proceeds, the Shanghai Stock Exchange (SSE), Hong Kong Stock Exchange (HKEX) and Shenzhen Stock Exchange (SZSE) snapped up the third, fourth and fifth places, with total funds raised at USD 12.9 billion, USD 11.4 billion and USD 7.5 billion respectively, ranking behind the New York Stock Exchange and NASDAQ. The HKEX is expected to rank third globally following the listing of Budweiser Brewing Company scheduled on 30 September 2019, anticipated to raise USD 4.6 billion*.

Paul Lau, Head of Capital Markets, KPMG China, said: "While the Chinese capital markets are enhancing their diversity and competitiveness through efforts to liberalise the IPO market, Hong Kong also remains a top destination for IPOs based on its strong fundamentals, despite a number of uncertainties affecting market sentiment and some IPO applicants adopting a more cautious, wait-and-see approach to proceed with their listing. We noted positive signs from the number of Main Board deals in the first three quarters which is in fact comparable to that of last year, and the number of new Main Board applicants in July and August which increased by about 30 percent compared to last year. As such, Hong Kong is likely to remain in the top three globally in terms of total funds raised for 2019."

Encouraging reforms liberalising the A-share market

The A-share market is forecast to record 127 new listings worth a combined RMB 140.3 billion in IPO proceeds during the first three quarters of 2019, an increase from the RMB 115.4 billion raised in the first three quarters of 2018, with a significant contribution from the new STAR Market. Since the first batch of companies were listed on the STAR Market on 22 July, the share prices of companies listed on STAR Market have surged, averaging an increase of 216 percent on their offering prices 10 days after listing.

Industrials and TMT sectors continued to dominate the A-share IPO market, accounting for close to 60 percent of the total funds raised. Both sectors are expected to continue to be key drivers of the A-share IPO market, where the Industrial sector is backed by a strong pipeline of 178 companies seeking a listing, and the TMT sector is with 97 such firms seeking to list on the traditional boards and 28 active applicants for the STAR Market, signifying keen interest across all stock exchanges for technology-related IPOs. Financial Services also did well during the period, with three out of eight listings ranked among the top 10 largest A-share IPOs year-to-date.

Louis Lau, Partner, Capital Markets Advisory Group, KPMG China, said: "The steady increase in the STAR Market amid global uncertainty indicates strong investor confidence in the new technology-focused board. Its registration-based system is expected to reform key elements of the capital markets, such as valuation, disclosure of information and trading mechanisms. As part of an encouraging continuation of these efforts, Shenzhen's ChiNext Board is preparing to adopt a similar system. This will enhance the diversity and competitiveness of Mainland China's capital markets and will further help innovative firms grow their business and raise funds. We expect to eventually see greater integration of the STAR Market with other capital initiatives in Mainland China's A-share market."

Stable Hong Kong Main Board performance, active in small to medium-sized deals

Should the mega-sized listing by Budweiser Brewing Company go through this quarter, the Hong Kong Main Board would raise HKD 124.3 billion (USD 16 billion) in the first three quarters, with the number of IPO listings at 88 - identical to the total number as of the end of 2018 Q3. Consumer Markets rank first among sectors in funds raised, at HKD 40 billion. The Healthcare/ Life Sciences sector is projected to claim the second position in funds raised, with HKD 25.5 billion (USD 3.3 billion) during the same period and building on positive sentiment from last year.

The Hong Kong IPO pipeline is at a historically high level, with exceeding 200 active applicants as of 13 September 2019. The city is particularly active in small to medium-sized deals, with 11 medium-sized IPOs on the Main Board in 2019 year-to-date and more than 10 potential deals of this size in the pipeline. The number of medium-sized deals for the year could surpass last year's total with 21 such deals. In addition, ESR Cayman recently announced its plans to revive its IPO in Hong Kong, and Budweiser Brewing Company is expected to list by the end of Q3. Both developments indicate an uptick in investor sentiment.

Irene Chu, Partner, Head of New Economy and Life Sciences, KPMG China, said: "The TMT sector in Hong Kong has a healthy pipeline, and key government policies and initiatives such as the Belt and Road Initiative and the Greater Bay Area continue to create opportunities for New Economy companies to grow. That said, investors continue to be cautious given the market uncertainties, which make pricing an IPO a major challenge. Technology companies with a strong team, healthy cash flows and clear growth strategies will find more success attracting investors."

*Note: Forecasted funds raised is based on the offer mid-price and without taking into account the offer size adjustment option and over allotment option.

About KPMG China

KPMG China is based in 23 offices across 21 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi'an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 153 countries and territories and have 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multidisciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.

Source: KPMG China