Press release

15 Dec 2021 Hong Kong SAR

Number of A-share IPOs and amount of funds raised hit record high, unicorn and return of China concept stocks lift proceeds in Hong Kong

HONG KONG, 15 DECEMBER 2021. EY today released the Mainland China and Hong Kong IPO report, which concluded 2021 IPO activities in the world and Greater China and highlighted the outlook for the upcoming year.

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EY today released the Mainland China and Hong Kong IPO report, which concluded 2021 IPO activities in the world and Greater China and highlighted the outlook for the upcoming year.

2021 saw robust IPO activities globally. By YTD 2021, a total of 2,388 companies were listed, and funds raised amounted to US$453.3b, up 64% and 67% by volume and proceeds respectively compared with the same period last year.

Compared to other regions in the world last year, the performance of Hong Kong and A-share are stable for the entire year. Mainland China and Hong Kong continued to be key drivers for IPO activities. IPOs in mainland China and Hong Kong accounted for 25% and 28% of the world’s total by deal volume and proceeds respectively. Shanghai and Shenzhen stock exchanges are expected to rank second and third among global bourses by the number of IPOs.

In terms of funds raised, six Chinese companies have dominated the world’s top 10 IPOs. Among them, the leading sectors include technology and automotive & transportations, while power & utilities and life science are the up-and-coming industries on the leaderboard this year.

It is estimated that a total of 94 companies were listed on the Hong Kong market in 2021, and the funds raised amounted to HK$323.7b. Compare with the same period of last year, IPO volume and proceeds decreased by 35% and 19% respectively. Funds raised by the top 10 Hong Kong IPOs amounted to HK$188.3b in 2021, representing 58% of the total funds raised. Five of the top 10 IPOs are the return of China concept stocks, three of them are unicorn companies, accounting for over 90% of the proceeds.

Ringo Choi, EY Asia-Pacific IPO Leader says: “Mainland China and Hong Kong have been imposing rigorous anti-epidemic measures. Progress has been made in the introduction of vaccines, and IPO activities remained stable. Until November, the emergence of the Omicron variant has caused market fluctuations in the stock markets of US, Europe and Hong Kong. More than 90% of the funds raised in Hong Kong's top 10 IPOs are unicorns and the return of Chinese concept stocks. Hong Kong’s leading position in the financial market has been proven once again. In mainland China, a series of reforms have been deployed, including the new securities law with the registration-based system, the improvement of the Science and Technology Innovation Board (STAR), the return of pilot red-chip stocks, NEEQ[1], and the launch of Beijing Stock Exchange (BSE). We believe that China's capital market is entering a new era.”

Regulatory reform to enhance the quality of A-shares

Since the implementation of the registration-based system launched by the State Council in October in 2020, seven out of the top 10 IPOs were conducted under the registration-based system with total proceeds of RMB62b, representing 44% of total funds raised.

The registration-based system significantly impacted on both the total number of IPOs and the amount of funds raised, representing 75% and 64% respectively. ChiNext has led in IPO deal volume. The BSE opened in November 2021. The total number of IPOs and funds raised under the BSE accounted for 2% and 0.4% respectively of the overall total.

In 2021, several policies and measures have been issued and implemented to improve the quality of new stock issuance. Although the number of issuances is on the rise, the number of companies have withdrawn IPOs upon the strict scrutiny of registration-based system, with the passing rate dropped from 95% to 88%.

Jacky Lai, Assurance Partner, Ernst & Young, Hong Kong, believes that the introduction of various measures such as implementing new securities law, improving the quality of information disclosure and consolidating intermediary responsibilities will help upgrade the overall standard of new stocks issuance. This can deepen the reform of the A-share market, where only the fittest will last. He says: "The China Securities Regulatory Commission, the Shanghai and Shenzhen stock exchanges and the Securities Industry Association have updated a series of regulatory requirements in September for the issuance and underwriting under the registration-based system. These rules will help on the development of a better market standard.”

Industrials and TMT ranked top of the number of deals and proceeds respectively. Biotech and health care entered top five by the number of deals and proceeds. In terms of the number of deals, the top five locations were Zhejiang, Jiangsu, Guangdong, Shanghai and Beijing, accounting for 68% of the total IPO deals. The top five locations in terms of proceeds were Beijing, Guangdong, Zhejiang, Shanghai and Jiangsu representing 72% of the total.

BSE accelerates the development of innovative SME ecosystem

The trial implementation of the company system at the BSE has played a positive role in the reform of the capital market system and as a pilot of the registration-based system to help enhance the vitality of NEEQ. It offers a new listing channel for small and medium-sized enterprises (SMEs) that had been facing difficulties in financing. For investors in the primary, market such as venture capital and private equity investment, the new system opens up new channels for delisting and allows such investors to convert the profits on ledger into actual profits. For investors in the secondary market of the BSE and NEEQ, it offers more opportunities for investing in innovative SMEs and reaping profits. Financial institutions such as investment banks and intermediaries can also benefit from these new measures and empower a vigorous development of the entire ecosystem.

Biotech and health care, the rising star in Hong Kong IPO market

Since the launch of the new regulations by Hong Kong Stock Exchange (HKEX) in 2018, IPO activities have been on the rise. The amount of funds raised in 2021 accounted for 60% of the total IPO amount compare with the same period of last year. 19 non-profit biotech and health care companies were listed, accounted for 20% of the annual IPO number, and 32% in terms of funds raised. IPO issued by eight weighted voting rights (WVR) companies accounted for 44% of the total fund raised. Seven China concept stocks successfully returned to the Hong Kong market, and the amount of funds raised accounted for 32% of the total. In addition to the secondary listing, two new automaker China concept stocks have also been listed in Hong Kong in a dual-primary listing this year.

The performance of biotech and health care IPOs has been outstanding. A total of 33 companies were listed in Hong Kong this year, ranked first by the deal number and second by the amount of funds raised. Excluding the returning of China concepts stocks, biotech and health care IPOs are also the sector leaders in terms of fund raised.

Unicorns and China concept stocks contributed 90% of IPO fund raised

Three unicorn companies and five China concept stocks accounted for 90% fund raised in the top 10 IPO. Biotech and health care industry outperformed and is leading in the number of IPOs. Peter Chan, EY TMT Assurance Leader, Hong Kong, says: “The technology, media and telecommunications (TMT) sector ranked top in terms of fund raised, accounted for 38% of the total. In terms of the number of IPOs, the real estate industry ranked second among the others. With the exception of one construction agency firm, all real estate IPOs are property service firms. The financial technology (FinTech) industry ranked fifth in terms of fund raised. In 2021, two out of three financial institutions are FinTech companies.”

SPAC regime under spotlight as HKEX continues to improve listing rules

The HKEX continues to improve the listing rules to meet the development and changes in technology and the market. It is expected that the introduction of the Special Purpose Acquisition Company (SPAC) will help reassure the quality of listed companies in order to attract investors and accommodate different business needs in Hong Kong. More biotech and health care companies are expected to get listed on HKEX as Hong Kong is the world’s second-largest biotech IPO center for local and cross-border listings. Other favorable factors to the IPO environment include unicorn listings and the return of China concept stocks. Several companies that originally planned to list in the US are shifting to Hong Kong. Furthermore, the Fast Interface for New Issuance (FINI) platform, expected to launch next year, will help optimize and digitize Hong Kong's IPO procedures.

Impact of China concept stocks returning to the Hong Kong market

With the growing vaccination rate and a gradual resumption of business activity, economic recovery will further accelerate. This will also alleviate the gap of supply and demand of energy commodities, which is conducive to the much-needed recovery of the manufacturing industry. Mainland China’s intensive regulatory measures may be relaxed to ease its negative impact. Southbound capital inflow will continue as mainland China’s monetary policy is likely to be loosened, providing solid support to the Hong Kong stock market.

The local economy is stable to regain rapid recovery. The return of Chinese concept stocks continues to gain momentum and some overseas companies may turn to the Hong Kong market. Technology and biomedical companies will generate tremendous opportunities for stakeholders. With Hong Kong’s valuation advantage, the number of companies queuing for IPOs will stay high.

Jacky Lai says: “Hong Kong’s IPO activities will continue to develop vigorously, but we still need to keep an eye on a few objective factors, including the persisting upside risk of global inflation, the potential fluctuations in overseas stock markets due to the US Fed’s tightening cycle process, and the potential pressure on overseas capital outflows due to the Fed’s potential cuts and interest rate hikes. China-US relations and the challenges of the geopolitical landscape also add uncertainties on investment.”

Regular compliance audits and risk assessments

In 2021, 39 IPOs from Chinese companies raised US$14.039b in the US market. The number of IPOs and proceeds increased by 18% and 15% respectively. In the second half of 2021, IPOs from mainland China companies dropped, with only three companies being listed in the US, accounting for 8% and 3%, in terms of IPO deals and proceeds. More stringent measures have been imposed in mainland China and the US which have led to a drop in the number of Chinese funded IPOs in the US. Peter Chan suggests: “Companies that are planning to get listed abroad or in Hong Kong, and those that are already listed, are reminded to take timely actions to carry out data security audits and risk-assessment on a regular basis. Prevention is better than cure. It is better to take the necessary precautions and maintain close communication with regulators.”

2022 outlook

Ringo Choi says that the economic recovery process and the intensity of the economy are closely related to the effectiveness of epidemic control. The pace of global recovery is accelerating as people are anticipating the post-pandemic business cycle. Supply chain and inflation issues will last for a while, and US monetary policy will be further tightened. Mainland China's economic recovery continues to resume normal. The performance of A-share IPO activities in 2022 will be subject to the opening of its financial market and other factors that help attract foreign investors. The establishment of the BSE will promote A-share IPO activities throughout next year, especially for SMEs. The “dual carbon” implementation plan and related policies have been rolled-out, stakeholders will be benefited from the carbon neutrality-related IPO activities. In Hong Kong, with the return of China concept stocks and eligible WVR, we foresee that new economy companies, such as TMT, biotech and health care companies, will be the main industries for Hong Kong IPO financing and become the driving engine of next year’s economy.

¹ National Equities Exchange and Quotations


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About data

2021 data in the press release are based on priced IPOs from January 2021 to 14 December 2021 and expected IPOs by end of December. Sources of data include EY statistics, Wind, CSRC, Eastmoney, Hong Kong Stock Exchange and Nasdaq.

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