Hong Kong’s hot market has its busiest IPO day in six months

HONG KONG — Hong Kong had its busiest IPO day in six months on Friday, bolstering the city’s role as a listing site as regulators in both China and the US balk at foreign IPOs by mainland companies.

Five companies begin trading on the city’s stock exchange after raising a total of $630 million, marking the biggest day for IPO listings since January 8.

The newcomers include clinical testing company Kindstar Globalgene Technology, pearlescent pigment producer Global New Material International Holding, property managers Kangqiao Service Group and Ronshine Service Holding, and China General Education Group.

Global New Material was up 20% from its early trading offer price. However, the other four debutants recorded slightly below their IPO level.

Thirteen companies have priced Hong Kong deals so far this month, the most since January, data from Dealogic shows.

Hong Kong has hosted new listings worth $32.5 billion so far this year, almost all from Chinese companies, compared to $19.2 billion in the first seven months of 2020, according to the data. The continued momentum and investor interest comes as China restricts foreign listings — to discourage companies from selling US stocks — and strengthens screening for listings on local exchanges.

“We continue to see strong supply and consequent investor demand for IPOs in Hong Kong,” said Jan Metzger, Citigroup’s Head of Banking, Capital Markets and Advisory for Asia-Pacific. “There is a strong pipeline of transactions across sectors. Our clients are focusing on the fundamentals. Hong Kong remains an attractive IPO destination for many of our clients.”

The US capital markets are ahead in the scale and diversity of their investor base and the number of comparable companies. But Hong Kong is an attractive alternative given Beijing’s repression, reforms by the Hong Kong exchange and sufficient liquidity in the city, analysts and investors say.

Hong Kong will be crucial as hungry tech and biotech companies seek capital.

About 70 healthcare companies have raised more than $50 billion on the city’s stock exchange, making it the second-largest fund-raising center for biotech companies after New York, Nicolas Aguzin, CEO of Hong Kong Exchanges & Clearing, said the exchange exploits.

The stock market has become a hub for new economy companies, he said, with such stocks producing one-third of the capitalization of all stocks on the stock, up from 4% three years earlier.

“You can see the dramatic growth of new economy companies in the stock market,” Aguzin said. “Everyone knows that companies want to be where their colleagues are.” This factor is already “attracting” players from the region, including Southeast Asia, he said.

The exchange considered 179 applications as of June 30, with 41 applications last month alone, according to its website. Beijing’s crackdown on US listings by Chinese companies could divert much of the flow to Hong Kong.

NetEase’s music streaming unit has filed an IPO filing in Hong Kong. Chinese artificial intelligence startup SenseTime and Tencent Music Entertainment, already listed on the New York Stock Exchange, are preparing to go public in the city, say people familiar with the plans.

Share price for Hong Kong Exchanges & Clearing is up 10% since July 1, when China announced its regulatory crackdown just days after ride-hailer Didi Global was listed in New York. In comparison, the stock market’s Hang Seng index has fallen 3% over the same period.

Beijing said on Saturday that companies that have data on more than 1 million users must now apply for cybersecurity approval when seeking foreign listings — a move that would involve nearly all offshore IPO aspirants.

Chinese medical data group LinkDoc Technology has called off its US IPO at the last minute in response to regulatory changes. The SoftBank Group-backed Chinese fitness app Keep followed suit, according to the Financial Times, as well as e-commerce startup Meicai, the South China Morning Post reported, and Manycore Tech, according to The Information.

But Jianzhi Education Technology Group, which provides an online learning platform and educational content in China, filed its application with the US Securities and Exchange Commission on Tuesday.

The US has also erected barriers to new listings over the past year. Chinese companies will eventually be delisted if they do not share their audit data with US regulators, a pending rule that will apply to virtually all US-listed Chinese companies due to Beijing’s requirements.

President Joe Biden has also stepped up pressure on Beijing. Biden signed an executive order last month banning US residents and entities from investing in 59 Chinese companies over alleged links to the Chinese military. Chinese telecom companies, including China Mobile, have been delisted from US exchanges.

Pressure from Washington has prompted companies to do a second listing in Hong Kong as a hedge against delisting. US-listed Chinese companies, including Alibaba Group Holding, JD.com and Baidu, have raised more than $37 billion through new listings in Hong Kong since late 2019, data collected by Nikkei Asia shows.

“The Hong Kong IPO market for the second half of 2021 looks promising,” said Benson Wong, leader of the PwC entrepreneurial group in Hong Kong. “Investment sentiment in the Hong Kong IPO market is expected to continue to improve. We expect strong demand for IPO fundraising to continue.”