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Friday, July 29, 2016, 09:27

HK keeps IPO crown with more mainland enterprises

By Duan Ting

SAR’s strong financing ability, market’s maturity, along with HKEx’s regular promotion efforts on the mainland will continue to attract enterprises, writes Duan Ting.

HK keeps IPO crown with more mainland enterprises

Hong Kong remains the world’s top market for initial public offerings (IPOs) in the first six months of this year based on global consultancy PricewaterhouseCoopers’ (PwC) report, while the share of mainland companies listed in Hong Kong has grown a lot over the past 10 years by market capitalization and turnover values as well as numbers.

The funds raised by mainland enterprises accounted for 92 percent of the total in 2015, hitting a 10-year high. Between 2006 and 2015 this figure has been around 80 percent on average, but dipped to a record low of 36.7 percent in 2011.

Eddie Wong, partner of capital markets services at PwC Hong Kong, explained to China Daily that mainland companies taking a large share is a natural phenomenon. This is due to cultural differences between Hong Kong and the mainland being relatively minimal, while the absence of a time difference is another incentive for mainland companies to list in Hong Kong.

Edward Au, co-leader of national public offering group of Deloitte China, said that the mainland capital market is still incomplete, and the strong financing and refinancing ability as well as the maturity of the Hong Kong market attracts mainland companies to list in Hong Kong.

HK keeps IPO crown with more mainland enterprises

Funds expected to climb

Au mentioned that there are over 800 companies waiting to list in A shares, but every year only about 300 companies are successful.

As the listing demand of mainland companies is still large, Wong said he expected the funds raised by them to rise in future.

Currently there are 936 Chinese mainland listed companies, making up almost 51 percent of the whole Hong Kong IPO market. The 802 local-listed companies and the 104 foreign companies make up 43 percent and 6 percent, respectively, according to Hong Kong Exchanges and Clearing (HKEx) data released on Nov 30, 2015.

A spokesperson at HKEx elaborated to China Daily, saying companies tend to list in their home market so the Hong Kong market is the first choice for mainland companies seeking a listing on an international market as well as for Hong Kong-based companies, many of which have operations outside Hong Kong.

Listings and voluntary delistings are the result of commercial decisions by companies, and when and where to list are commercial decisions made by issuers based on their own business considerations, HKEx said.

Taking into consideration that the Hong Kong and Singapore capital markets are close and similar, compared with Hong Kong the Singapore IPO market is more diversified but the performance is less impressive.

Sixty-three percent of the companies listed in the Singaporean market are local while 16 percent are from the Chinese mainland, and 21 percent are from other countries and regions.

HK keeps IPO crown with more mainland enterprises

Wooing by Lion City

According to a report by Deloitte, new listings on the Singapore Exchange raised a total of US$1.6 billion over the first six months of 2016, more than 29 times the total funds raised in the first half of 2015.

Total funds raised in Hong Kong in the first half of 2016 dropped to HK$43.5 billion, 66 percent less than in 2015. There were 38 new listings — a 17 percent decrease compared to the same period last year.

Deloitte China’s Au explained that before 2012, Singapore had launched a policy of promotion and attracted lots of fund companies from different regions to list there. But after they changed the policy and raised the listing threshold to attract big enterprises, the performance of the Singapore IPO market became less impressive.

According to the spokesperson at HKEx, even though foreign companies account for only 6 percent of the market, four of them ranked among the top 25 firms with the biggest market cap on the HKEx’s Main Board, including HSBC Holdings Plc, AIA Group Ltd, Sands China Ltd and Standard Chartered Plc.

HKEx said they hold listing seminars or roadshows on the mainland and in other countries and regions from time to time to promote the advantages of listing in Hong Kong. To facilitate more listings by companies from overseas, HKEx has frameworks for depositary receipts and secondary listings.

In January this year, HKEx announced its Strategic Plan for 2016-18, indicating they will focus, among the other things, on enabling investors to subscribe to primary market offerings using a “Primary Equity Connect” structure to fundamentally change Hong Kong’s proposition as a listing venue for international issuers.

Au said that HKEx is reviewing the regulations on listing qualifications, registration places, the judicial examination and approval process, as well as the listing mechanism of the growth enterprise market.

Wong said that in the long term attracting foreign companies to list in Hong Kong is good for the local financial market. More promotion can be undertaken in the overseas market and regulators can consider listing rules to fit different foreign companies. Wong suggested that foreign companies can think about spinning off their business on the Chinese mainland to list in Hong Kong.

HK keeps IPO crown with more mainland enterprises

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