- In 1H2020, A-share market saw an increase in IPO activity by both deal numbers and proceeds; the number of companies queuing up for IPOs and the rate of IPO application approval rate stayed high; the implementation of China’s new securities law opened a new era of stock issuance.
- HKEX saw a decline in IPO activity by deal numbers due to the outbreak of COVID-19 but an increase in proceeds driven by the secondary listing of JD.com, Inc. and NetEase.com, Inc.; many companies made their debut on virtual listing ceremonies.
EY today released the report IPOs continue to grow in mainland China and Hong Kong despite the outbreak of COVID-19, which concluded 1H2020 IPO activities in the world and Greater China and highlighted the outlook in 2H2020. Due to the outbreak of COVID-19, global IPOs slowed down in 1H2020, a total of 412 companies were listed and funds raised amounting to US$66.7b, down 20% and 12% by volume and proceeds respectively compared with the same period last year. Compared to other regions, mainland China and Hong Kong suffered less from COVID-19, where IPOs continued to grow, accounting for 43% and 46% of the world’s total by deal numbers and proceeds respectively. The Shanghai Stock Exchange (SSE) gained global IPO crown by both deal numbers and proceeds. Chinese companies, namely Beijing-Shanghai High-speed Railway, JD.com, Inc. and NetEase.com, Inc., ranked top three among the world’s largest IPOs by proceeds.
Terence Ho, EY Greater China IPO Leader, said: “In Q2, IPO activities in mainland China and Hong Kong were back to pre-Covid-19 level as the pandemic has been controlled in mainland China along with a number of high-profile secondary listings in Hong Kong. The Chinese Government continues to roll out economic stimulus while the People’s Bank of China continues to provide liquidity to the market, these should help speed up economic recovery and boost IPO market outlook for 2H2020.”
A-share market saw an increase in IPO activity by both volume and proceeds
It is estimated that 120 companies were listed on the A-share market in 1H2020, with a YOY increase of 88%; and the funds raised amounting to RMB139.9b, with a YOY increase of 132%. In 1H2020, IPO activities didn’t suffer much from the outbreak of COVID-19. However, March saw a MOM decrease in IPO activity and ranked bottom by both volume and proceeds in 1H2020 due to the pandemic and poor performance in the capital market, while January ranked top by proceeds driven by a mega IPO with funds raised above RMB10b. The average funds raised rose to RMB1.166b from RMB944m in the same period last year.
The STAR Market continued to drive IPO momentum on the A-share market. IPOs on STAR ranked first and second by deals (39%) and proceeds (37%) respectively among different boards on the A-share market. The pandemic had relatively low impact on STAR, which outperformed other boards under the most severe situation in February and March. IPOs from 15 companies on STAR accounted for 43% and 58% by volume and proceeds respectively of the total in February and March. This is mainly contributed by the industry attributes of companies listed on STAR, especially information technology companies which suffered less from the pandemic. Four out of top 10 IPOs on the A-share market by proceeds came from STAR, with funds raised at RMB13.8b, representing 23% of total funds raised by top 10 IPOs.
The number of companies queuing for IPOs and the rate of IPO application approval stayed high. As of 19 June 2020, there were 632 companies in the IPO queue list of the A-share market, the rate of IPO application approval increased to 93%. For STAR, there were 194 companies in the IPO queue list of the SSE. From 30 June 2020, the Shenzhen Stock Exchange will begin accepting applications from new companies on ChiNext.
In terms of average rate of return for IPOs, SSE Mainboard (258%) is leading other boards and becomes the highest one. Overall, the average rate of return for IPOs increased to 196% in 1H2020, up around 8% from the same period last year.
In terms of industries, the mega IPO of Beijing-Shanghai High-speed Railway pushed up proceeds from the transportation and logistics sector, which ranked top by funds raised followed by the TMT sector, while financials dropped out of top five by both volume and proceeds with only two IPOs in 1H2020. By regions, Guangdong and Beijing led other regions in IPOs by deals and proceeds respectively. Driven by the mega deal of Beijing-Shanghai High-speed Railway with funds raised over RMB10b, Beijing ranked top by proceeds.
On 1 March 2020, new securities law took into effect, promoting registration-based system with information disclosure as the core. Jane Yang, EY1 Assurance Partner, said: “The new securities law highlights the improvement of the multi-tiered capital market system, including stock exchanges, other national securities trading venues approved by the State Council and regional equity markets established in accordance with the provisions of the State Council. Following the reform of ChiNext, the registration-based IPO system will be implemented, mainly targeting fast-growing innovative start-ups. To a certain extent, it fits in with the development needs of the new economy and new infrastructure. For STAR, the CSRC issued Guidelines for the Evaluation of Science and Technology Innovation Attributes (Trial) in March to further clarify the development orientation of STAR, support high-tech enterprises to go public, and improve the inclusiveness of the capital market for science and technology innovation enterprises.”
Two US-listed Chinese companies ranked top 2 by proceeds through secondary listing in Hong Kong
It is estimated that 59 companies were listed on the Hong Kong market in 1H2020, with a YOY decrease of 20% due to COVID-19; and the funds raised amounting to HK$87b, with a YOY increase of 21%. JD.com Inc. and NetEase Inc., two mainland Chinese companies listed in the US, raised HK$54.3b through secondary listing in Hong Kong, accounting for 62% of the total proceeds in 1H2020. Nearly 60% of IPOs came from companies on the Mainland, whose funds raised accounting for 96% of the total; compared with the same period last year, proportion in deals dropped slightly while proceeds increased. Compared with the prior year, market sentiment improved with 212 times of average oversubscription, 542% higher than last year. In 1H2020, 96% of IPOs on the Hong Kong Main Board were oversubscribed.
Driven by the secondary listing of US-listed Chinese companies, TMT took the limelight and led IPO activities by both deals and proceeds. Eight of the top 10 IPOs in Hong Kong are health care and TMT companies in the new economy sector, with funds raised accounting for 94%. Five construction and infrastructure companies from Southeast Asia were listed in Hong Kong, accounting for 45% and 42% of total deals and proceeds from the sector.
King Li, EY1 Assurance Partner, said: “In 1H2020, 15 Chinese companies were listed on US exchanges, raising US$2.269b with a YOY decrease by 12% in deal volume and a YOY increase by 43% in proceeds. Among them, 14 companies from mainland China were listed on Nasdaq with proceeds of US$2.139b, representing 93% and 94% of the total number and proceeds of US-listed IPOs from mainland China in 1H2020 respectively.”
Innovative SMEs see IPO opportunities
In 2H2020, IPO activities will be affected by many factors, including new challenges for China-US relations, the COVID-19 pandemic and trade uncertainty, with economic growth under downward pressure. On the other hand, the listing of innovative SMEs will be boosted by the accelerated reform of the registration-based IPO system on the ChiNext board and the establishment of a multi-level capital market. The development of new infrastructure will exert a profound influence on the capital market, and benefits of progress in core technology will be the key to driving China's economic growth. As the number of companies in the IPO queue list remains at a high level, especially with companies in the queue to list on ChiNext accounting for the largest proportion, EY expects that IPO activities on the A-share market will remain robust and innovative SMEs will dominate IPO activities in 2H2020.
For the Hong Kong market, the return of China concepts stocks will significantly influence the proceeds of the year. Terence Ho said: “It is still likely to have IPOs from Chinese companies listed overseas through secondary listing in Hong Kong during 2H2020.”
1 Ernst & Young Hua Ming LLP
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The global IPO data in the press release are based on priced IPOs as of 17 June 2020 and expected IPOs by 30 June. The mainland China and Hong Kong data are based on IPOs as of 22 June 2020 and predicted IPOs as of 22 June. Sources of data include EY statistics, Wind, CSRC, Shenzhen Stock Exchange, Eastmoney, Hong Kong Stock Exchanges and Nasdaq.
This news release is issued by the EY China practice, a part of the Ernst & Young global network.