Hong Kong leads globally in raising record amount of IPO funds in 2015

2011 was the last time it topped.

The amount of funds raised by IPOs in Hong Kong in 2015 meant that it reclaimed its top ranking worldwide for the first time since 2011, leaving New York and Shanghai a distant second and third.

According to a release from PwC, it is upbeat about the IPO market’s prospects in 2016 and believes that funds raised in Hong Kong could continue their rise to HK$300 billion.

Setting a new record for Hong Kong, there were a total of 138 new listings in 2015. Of these, 104 companies were listed on the Main Board (against 103 in 2014), including 14 companies switching from a GEM to a Main Board listing (twice the number for 2014).

A total of 34 companies opted for a GEM listing, compared to 19 in 2014. This set a record for the number of GEM IPOs in Hong Kong in this decade and reflects the GEM’s more effective role as a fund-raising platform for startup companies. The retail, consumer goods and services sector provided the majority of new listings, followed by industrial products and financial services companies.

Funds raised by IPO companies reached HK$261.3 billion in 2015 – an increase of 12% over 2014. Financial services companies accounted for 56% of the total amount raised on the Main Board. This reflects the fact that many mainland banks and financial institutions have been waiting for the right opportunity to broaden their capital.

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Overall, small and medium-sized enterprises continued to dominate IPO activities. In addition, funds raised by other forms of share issuance reached HK$811.8 billion in 2015 – mainly financing through placements and rights issues by listed companies. This indicates the growing allure of Hong Kong’s secondary market as a fund-raising platform for listed companies.

“In the first half of 2015, active trading on the Hong Kong stock market, sufficient liquidity and favourable investment sentiment all drove the IPO market to flourish even more than before,” says Eddie Wong, Partner of Capital Markets Services, PwC Hong Kong. “The A-share market in July dragged down the overall mood, as well as the performance and pace of IPOs in Hong Kong through August and September. However, small and medium-sized IPOs continued to launch and perform well in September and October, and the value and volume of IPOs picked up in the traditional peak season of November and December. This shows that Hong Kong’s position as a leading international fund-raising platform remains strong, thereby attracting various companies ready to go public to choose Hong Kong as their listing destination.”

PwC estimates that there will be 130 new IPOs in 2016 – similar to 2015’s level. Provided that the global economy does not slide and there are no significant and negative changes in the market, PwC estimates that funds raised by IPOs could reach HK$300 billion, placing Hong Kong among the top three in the world. The focus of listings in Hong Kong in 2016 will be the financial services industry. In recent years Chinese financial institutions have been committed to broadening their channels for additional capital in order to improve capital adequacy and meet future development needs. This has driven them to consider Hong Kong as a fundraising destination – PwC believes this trend will continue from 2015 into 2016.

“Although US interest rates may rise further in 2016, we don’t expect the pace to accelerate, considering the state of the European economy and depreciation in the RMB. The impact on the Hong Kong IPO market will thus be limited. Given the broad measures to cut interest rates in Europe, as well as the expected move by the People’s Bank of China to cut rates and lower banks’ deposit reserve ratio, we expect that global liquidity will be abundant and will continue to flow into emerging markets, ensuring strong performances by the mainland and Hong Kong stock markets,” says Benson Wong, Assurance Partner, PwC Hong Kong. “In spite of the economic slowdown in the mainland, China is still expected to maintain a medium to high growth rate of 6-7%. This will boost the expansion of domestic enterprises. Their continuing demand for financing will also support the performance of the IPO market in the mainland and Hong Kong.”

In terms of the Shanghai and Shenzhen markets, PwC expects 400 new listings in 2016, with total funds raised estimated at RMB250-300 billion. The anticipated implementation of various market reform policies in the new year, including the launch of the registration-based IPO system and the Strategic Emerging Industries Board, are expected to have profound impacts on the mainland stock market and to positively influence IPO activity. The acceleration of the registration-based system, in particular, will further open up and enhance the A-share market. PwC believes these favourable factors will continue to boost the momentum of IPO activity in the Shanghai and Shenzhen markets in 2016.

“PwC is upbeat about the IPO market in 2016. We believe that fundraising by IPOs in Hong Kong and China will be even more buoyant in the new year. We estimate that there may be more than 10 IPOs raising between HK$5 billion and 10 billion, and 7 or 8 mega-IPOs raising over HK$10 billion in Hong Kong in 2016. Further recovery in the mainland stock market, coupled with a rebound in investor sentiment in Hong Kong, will help to increas