China's equity market has just notched its largest IPO of the year, but this was a rare milestone as the primary A-share market remains under tight regulatory control, prompting more issuers to seek listings in Hong Kong instead.
Huadian New Energy, a renewable energy unit of state-owned China Huadian Group, raised Rmb15.8bn (US$2.2bn) from its Shanghai IPO and saw its stock rocket as much as 220% on its trading debut on July 16. It closed at Rmb7.13 on Thursday, up 124% from the Rmb3.18 IPO price, for a market capitalisation of Rmb292bn.
The fundraising will increase to US$2.5bn if a 15% greenshoe is fully exercised.
But that stellar debut doesn't mean there will be more sizzling A-share IPOs or any substantial acceleration in the pace of offerings, according to bankers.
“Chinese regulators still tightly control the size and pace of IPOs to support the stock markets. They are also very strict at screening listing candidates, making sure only good-quality companies can go public. The strategy seems to be working and it’s hard to predict when they will loosen controls,” said a Beijing-based banker.
Huadian, which cleared a hearing in June 2023 at the Shanghai Stock Exchange, originally aimed to raise Rmb30bn but had to settle for half that amount.
Hong Kong on top
“More Chinese companies are now planning or considering Hong Kong listings as the process is generally faster. The buoyant Hong Kong IPO and stock markets, and the return of global investors, are also attractive to issuers,” said another Beijing-based banker.
Hong Kong has been the world’s top IPO market this year in terms of fundraising amount, with 51 companies having raised US$16.4bn, according to LSEG data.
For comparison, around 58 companies raised US$9.3bn from A-share IPOs.
Hong Kong’s stock market also performs better. The benchmark Hang Seng Index closed at 25,667.18 on Thursday, its highest since November 2021. The index is up 28% this year while the CSI 300 Index, which tracks leading companies in Shanghai and Shenzhen, is up 5.4%.
That outperformance was notched in the first half and both markets have traded in line in July.
For industry leaders, the fact that several A-share companies managed to trade at a premium in Hong Kong after listing there, contrary to what used to be the case, is another reason to consider a Hong Kong listing.
Shenzhen-listed printed circuit board maker Victory Giant Technology (HuiZhou) is planning a Hong Kong listing of about US$1bn while Shenzhen-listed medical equipment maker Shenzhen Mindray Bio-Medical Electronics is considering a Hong Kong listing of at least US$1bn.
H-shares of Chinese battery maker Contemporary Amperex Technology closed at HK$428.60 on Thursday, a 37% premium to the A-shares (Rmb285.20 or HK$312.95). H-shares in Jiangsu Hengrui Pharmaceuticals closed at HK$72.95 on Thursday, a 16% premium to the A-shares at Rmb57.50.
Market participants generally believe the Hong Kong IPO market will manage to keep the top spot globally for the rest of the year.
“In the midst of global tensions stoked by US trade policies, Hong Kong’s role as the bridge between the East and the West is more important than ever,” said Louis Lau, head of Hong Kong capital markets group at KPMG China.
“While other global IPO markets have slowed, Hong Kong is showing significant growth driven by A+H and high-tech listings. We remain highly optimistic about the outlook for Hong Kong’s IPO market for this year and beyond,” he said.
As of Thursday, more than 200 companies have filed applications for Hong Kong listings and about 320 companies have applied for A-share IPOs.