A-shares IPO retains its lead in proceeds; Hong Kong IPO activity expected to pick up

• Global IPO activity declined in 2023, with the number of deals and proceeds falling 12% and 35% YoY respectively. The Chinese mainland remained an important market for global IPO activity. As of 17 November 2023, its total proceeds accounted for over 40% of the global total proceeds raised.
• A-share activity faced a speed bump with the introduction of a portfolio of policies in 2H 2023, while the Beijing Stock Exchange (BSE) enters a phase of rapid development thanks to supportive policies.
• To recuperate from the downturn, continuous efforts have been made in the Hong Kong IPO market to enhance the liquidity of the stock market, woo foreign capital, and boost the attractiveness of Hong Kong's capital market.

EY today released the Chinese mainland and Hong Kong IPO report, reviewing IPO activity in 2023 globally and in Greater China, as well as its outlook for 2024.

Global IPO activity slowed down in 2023 as forecasted, with a total of 1,244 companies expected to be listed globally, raising US$119.2 billion by the end of the year, said the report. The number of deals and proceeds raised have dropped YoY by 12% and 35% respectively. Some mega deals have delayed their plans to go public due to underwhelming post-IPO performance of a few high-profile listings. Considering market volatility and macro uncertainty, companies, private equity, venture capital and investors are likely to remain cautious and disciplined approaching the end of the year. 

The Chinese mainland remained an important market for global IPO activity. According to an estimate as of 17 November 2023, IPO proceeds from A-share market accounted for over 40% of the total proceeds raised globally. Exchanges in Shanghai and Shenzhen ranked among top global bourses by IPO proceeds. Four IPOs from China were among the top ten IPOs in 2023, mainly in the technology, energy, and power sectors.

A-shares IPO activity relaxes in 2H, retains its lead in proceeds, while BSE leaps into a new phase of rapid development thanks to supportive policies

The A-share market is expected to see more than 300 IPOs in 2023, with a YOY decrease of 30%; and the proceeds raised amounted to RMB350 billion, with a YOY decrease of 41%. In 2H 2023, a portfolio of policies were introduced to boost A-share market. For example, the China Securities Regulatory Commission (CSRC) proposed to sustain IPO activity in a rational manner to maintain a dynamic balance between the primary and secondary markets. Afterwards, a phrased approach was introduced to tighten the pace of IPOs. IPO activity started slowing down in 2H 2023 and suffered a further setback in Q4 2023, representing 11% of the total deals and 7% of total proceeds raised respectively. The IPO proceeds reported the lowest level since the launch of STAR and registration-based system in 2019.

In 2023, industrials, TMT and materials were the leading sectors for IPOs accounting for the top three in terms of both the number of deals and the proceeds raised. The number of deals and the proceeds raised accounted for 80% and 81% of the total respectively. IPOs by biotech and healthcare companies suffered a setback, lingering at the lowest level in nearly five years by both volume and proceeds. Top three IPOs by proceeds came from the semiconductor sector, accounting for 52% of the top ten.

Ringo Choi, EY Asia-Pacific IPO Leader says: “Some industries enter a downward cycle along with the global economy. Survival of the fittest in the capital market and the overall slowdown in IPOs are only natural. With the launch of the full-market registration system reform in China this year, the reform adheres to the national direction of marketization, rule of law, and globalization, and accentuate the decisive role of capital market in resource allocation. Once the system gets cruising, the capital market will be friendlier towards technology and innovation, improving the market structure and its ability to promote economic transformation. With the tightening of A-share IPO policies phasing in, companies planning to go public should re-examine their short to medium-term development, be on the lookout for opportunities for mergers and acquisitions, and also seek overseas listing opportunities in a timely manner. Consequentially more companies are expected to change their listing venue to Hong Kong.” 

Based on the trends in each sector, the STAR and ChiNext should maintain its lead in 2023, with the ChiNext and the STAR ranking first in terms of number of deals and proceeds raised. The BSE has solidly promoted high-quality expansion and liquidity improvement, and entered a period of rapid development. It is, therefore, less affected by the tightening of IPOs and the proportion of IPO acceptances has increased. Meanwhile, percentage of specialized, refinement, differential and innovation (SRDI) companies in various sectors are taking up more of the BSE, increasing from 21% to 27%.

Choi says: “Amid the recent tightening pace of IPOs, the release of Opinions on Building a High-quality BSE and supporting measures will rapidly advance the high-quality expansion and liquidity improvement of the BSE. Meanwhile, the board-transfer listing arrangement provides an option for investors to exit investment. Featuring inclusiveness, a tight and flexible timeline, a fast review system and a clear board-transfer listing arrangement, listing on the BSE will become a new trend for high-growth SRDI companies.”

Hong Kong IPO hits a record low, prompting market reforms

A total of 61 companies are listed on the Hong Kong market this year, and the proceeds raised amounted to HK$41.3 billion. The number of deals and proceeds declined by approximately 19% and 59% respectively over the last year. The proceeds in 2023 reached its lowest level in the last 20 years. In 2023, the IPO number and the proceeds of Chinese mainland companies accounted for 93% and 98% of the total respectively, continuing to lead Hong Kong's IPO market. 2023 saw no IPOs of overseas companies, except for one Chinese company with origins in Southeast Asia.

In 2023, the TMT sector ranked first by number of deals. The biotechnology and health care sector ranked first by proceeds, accounting for 23% of total proceeds raised. In 2023, four logistics companies were listed on the Hong Kong market, placing them in the top five by both the number of deals and the proceeds raised. Proceeds raised by top 10 IPOs dropped by 70% YOY. The number of large IPOs in 2023 was notably lower compared to the last year. The proceeds of the top IPO this year was less than the sixth-ranked IPO of last year.

To recuperate from the downturn, continuous efforts have been made in the Hong Kong IPO market to boost the overall attractiveness of Hong Kong's capital market. HKEX introduced Chapter 18C of the Main Board Listing Rules in March to open up listing channels for specialized technology companies. In September, HKEX published a consultation setting out reforms to GEM Listing Rules, streamlining the transfer mechanism to further enable qualified GEM issuers to transfer to the Main Board.

Hong Kong remains an important global IPO venue and an international financial center

Jacky Lai, EY Hong Kong Capital Market Service Spokesman says: “Hong Kong remained as an important global IPO venue and an international financial center despite sluggish IPO activity in 2023. Regulatory improvements on listing rules have been put in place to adapt to the dynamic environment. Specialized technology companies such as those in industries like artificial intelligence and smart driving can benefit tremendously from the new listing rules. The GEM reform aims to vitalize the market. The introduction of a new streamlined switching mechanism will facilitate companies interested in listing on GEM earlier. On the other hand, the new financial qualification test will attract R&D-driven growth companies. Through regulatory reforms and programs like the Hong Kong Stock Connect, lots of efforts have been made to enhance the liquidity of the stock market and attract more foreign capital, which in turn is strategically significant in consolidating Hong Kong’s status as an international financial center.”

The Mainland’s filing-based system for overseas listing was implemented in 2023. Hong Kong emerged as the primary choice for domestic Mainland enterprises seeking to list overseas, constituting 69% of all filed enterprises. Overall, indirect listing is the most commonly used approach by these companies for going public in Hong Kong.

Peter Chan, EY Hong Kong TMT Assurance Leader points out: “US-listed IPOs are gaining momentum. In 2023, it is estimated that 28 companies from Chinese Mainland and Hong Kong were listed on the US market, raising a total of US$745m. The number of IPOs and proceeds have increased by 87% and 45% YOY respectively. Since the filing-based system launched, 18 companies from the Chinese mainland seeking listing in the US have passed the SEC filing, of which three have been successfully listed; another 29 companies are in the process of filing.”

Chan suggests that during the initial phase of implementing the new regulations, the duration for overseas listing has been extended due to various reasons. Therefore, companies planning to go public must carefully evaluate the relevant factors and devise a more practical listing schedule.

A-share opportunities come with challenges; Hong Kong IPO activity is expected to pick up with a stabilizing capital market

Opportunities will come with challenges in 2024 for the economy of China, as the "new infrastructure" and "dual circulation" strategies continue to march forward. A consensus has been reached to "vitalize the capital market and boost investor confidence", and policies supporting and encouraging the long-term development of the capital market have been continuously introduced to bring in more medium and long-term funds. Full implementation of the registration-based system will also steadily promote the all-facet reform, improve the quality and efficiency of the capital market, and prevent risks in the future.

Choi believes that in 2024, the economic environment and capital market performance will affect the pace of IPO issuance, and we expect that the pace of IPO issuance will remain tight for a certain period of time. IPO policy will be in support of "key technology" aligned with national strategies, and the IPO industry clustering effect will be strengthened. Maintaining more rigorous, transparent and prudent regulation of issuance and listing will continuously improve the quality of IPO enterprises.

In terms of the trajectory of Hong Kong, Lai says: “Proactive measures to improve market liquidity is crucial in vitalizing the Hong Kong capital market. HKEX launches its innovative IPO settlement platform. FINI is a major initiative that will significantly shorten, modernize and digitalize Hong Kong’s IPO settlement process. The new platform also introduces a new public offer pre-funding model to help alleviate the scale of funds that are locked up in over-subscribed IPOs.”

Chan, likewise, expresses confidence in the Hong Kong IPO market: “Hong Kong's capital market still face multiple challenges in 2024, and the recovery of IPO activity relies on the recovery of the capital market and the restoration of market capitalization. Despite of factors like the global economy weakening, and uncertainties in geopolitics and Fed rate hiking cycles, close to a hundred companies are still queuing to be listed in Hong Kong, exemplifying the intense interest and positive sentiment towards the Hong Kong market. With the tightening of IPOs in the Chinese Mainland, some companies, especially retail and consumer products companies, will switch to the Hong Kong market as well.”

Choi concludes: “As a global leader in IPO activity, Hong Kong has ranked as the world’s number one IPO venue in seven of the last 15 years. The Hong Kong market has seen a large number of IPOs, including large-scale secondary listings and high-profile biotech companies. In recent years, Hong Kong has improved its listing rules to adapt to dynamic environment. In the past few decades, the Hong Kong market has made unprecedented achievements. Hong Kong remained as an important global IPO venue and an international financial center, and the temporary stagnation will not change that. Looking forward, IPO activity in Hong Kong is expected to pick up with less unfavorable factors and a stabilizing capital market.”

-Ends-

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About the data 

The data presented in the press release are based on priced IPOs from 1 January to 17 November 2023, and expected IPOs by 31 December 2023. Sources of data include EY statistics, Wind, the China Securities Regulatory Commission, and Hong Kong Stock Exchanges.