Hong Kong to make IPO comeback?

The feeling is that things can only get better for Hong Kong.

An improvement in the languishing market for initial public offerings could come as early as the second half of 2013, believes Michael Andrew, the Hong Kong-based global chairman of KPMG.

He said there were a lot of pent-up IPO prospects in Hong Kong. In addition, his firm was seeing some IPO activity and a rise in inquiries.

Other analysts said Hong Kong had unique advantages unmatched by other financial centers. For Chinese companies looking for funds, Hong Kong still represents the most attractive option in the region since the mainland market is largely closed to foreign investors.

More important, the Shanghai Stock Exchange has a backlog of around 800 companies waiting to list. Hong Kong is also expected to be targeted by smaller, privately held Chinese companies looking to raise money to fund growth.

Bankers agree that the days of the mega-deals that propelled Hong Kong to top spot in the world are over. Many of the large state-owned corporations responsible for this boom have listed and those that remain seem content to wait for the current economic downturn to end before considering an IPO. Smaller Chinese companies are now crowding into the IPO market.

That structural shift explains the Securities and Futures Commission, the city’s regulator, toughened listing requirements last week. Under the SFC’s new rules, investment banks who sponsor listings will be forced to carry out far more thorough due diligence before a company can apply for a listing.

One proposed change, which will require new legislation, would also make banks criminally liable for false information included in an IPO prospectus.