July 29, 2021

Market Spotlight: Hong Kong IPOs set to crawl out of Q2 lows in months to come

By Robert Torio, Content Marketing Manager, APAC, Datasite and Perris Lee, Asia ECM Editorial, Insights Director, Acuris

 

With vaccine rollouts – albeit uneven – globally, equity capital markets worldwide grew exponentially in the first half of 2021. According to Dealogic, total funds raised in the global ECM markets soared 62% year-on-year to US$785 billion in the January-June period, with Asia commanding a US$279.9 billion share, making it the region’s best first-half ever. This figure covers IPOs, secondary follow-ons, and equity-linked bond offers. 

Asian IPOs alone totaled US$85.4 billion in the first half, more than double from last year. It is against this backdrop that a panel of market experts held live webinar discussions about Hong Kong’s IPO market in July.

Perris Lee, Asia ECM Editorial, Insights Director at Acuris, led the session with the following panelists:

  • Barry Chan, Managing Director, Head of Investment Banking - HK, Head of Execution Supervisory Committee – Overseas, CICC
  • John Lee, Vice Chairman, Head of Greater China, Global Banking, UBS AG
  • Calvin Lai, Partner, Freshfields Bruckhaus Deringer
  • Toto Ku, Head of Greater China, Datasite

 

Stimulus through monetary measures

Based on the online poll at the webinar, as many as 44% of the 500-plus audience considered a loose monetary policy as the key factor underpinning growth in Hong Kong’s IPO market this year.

That’s followed by capital requirement for mergers or acquisitions, which 23% of the audience deemed is the most important factor, while 19% felt a high market valuation will support the primary market, and 13% gave their votes to a gradual economic recovery from the pandemic. 

According to Chan, all four factors were important considering the time frame. In the midterm, monetary policy can play an important role as governments are trying to speed up the recovery from the pandemic and this stimulus is needed to drive recovery.

“However, we must understand that recovery takes a long time and not every country can have a speedy recovery as China. I think the other reasons, besides monetary policy, matter a great deal as well, but definitely an easy monetary policy is the most important aspect,” said Chan.

 

Sound IPO execution over IPO destination

Stocks are a leading economic indicator, as they are very closely tied to government policies. The latest regulatory changes in China are bound to impact Chinese corporate listings going forward, especially those with an aim to be listed overseas.

“This encourages companies to instead of getting listed in the US, maybe they will first get listed in Hong Kong and contemplate their next step,” said Lai.

He further explained: ”Whether you want to get listed in Hong Kong, in the US, or in China, it's very important to have sound internal controls as that's key to your IPO success. It's very fundamental.” 

That notion was clearly shared by the webinar’s audience. As many as 53% of them considered an efficient execution plan is key for a successful IPO, based on the same poll. 

Picking the right listing venue came in second, capturing 23% of the votes.

“A company should have a very good management team to guide them through the IPO process and to make the right decisions. You have to control the risk while making key decisions so that you can have a successful IPO to comply with all regulations,” Lai pointed out.

Tech to enhance data security and due diligence for regulatory process

“One trend I've observed is how AI can be used to take the initiative, to caution us regarding some risks and also in preparations we need to in order to close a deal faster,” noted Ku on where technology can help an IPO.

Forty six percent of the audience considered regulatory compliance and audit trail as the most technology and digital advanced aspect in IPOs, according to the poll, while 27% cast their votes for security and data protection, followed by information sharing’s 15%.

A technology enabled platform may be needed to handle process management, Ku stressed. 

“Also, regulations demand a robust due diligence process before an IPO. This is very important for the future because regulators review all due-diligence-related documents.”

Interested in learning more?

Find out what the experts had to say about IPO trends in China and Hong Kong, as well as discover the hot sectors for dealmakers.

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