Several factors weighed heavily on the Hong Kong IPO market in the first quarter, among them high inflation and interest rate increases in the U.S. and Europe, as well as the collapse of Silicon Valley Bank. Hong Kong’s top new listing in the first quarter was Chinese fuel cell engine maker Beijing SinoHytec, which raised US$140.5 million in January. However, that deal was small by global standards – No. 50 in IPO proceeds for the January to March period.
Though analysts expect the Hong Kong IPO market to recover, thus far in the second quarter, it has been slow going. There still has not been a US$1 billion deal, while key newcomers have fallen below the listing price after debuting. An expected surge in listings owing to Chinese firms leaving U.S. exchanges for Hong Kong has failed to materialize. Though the risk of forced delisting remains amid a strained U.S.-China relationship, a prolonged slump in equity markets has pushed down valuations and reduced the appeal of the switchover for many companies and investors.
Meanwhile, the highly anticipated market debut of Chinese liquor company ZJLD Group Inc. – the first non-mainland listing for a producer of the fiery sorghum liquor known was baijiu – was a disappointment. Bloomberg attributes the 18% slump in the company’s stock to HK$8.88 to a lack of cornerstone investors. ZJLD’s debut performance was the worst among listings larger than US$500 million since Zhejiang Leapmotor Technologies plummeted 34% on its first trading day in September 2022, according to Bloomberg.
We reckon that uncertainty about Beijing’s stance on technology firms could be affecting market sentiment as well. The abrupt nixing of Ant Group’s IPO in November 2020 had a powerful knock-on effect that chilled investor appetite for consumer internet tech stocks, and despite an active rumor mill suggesting that the deal is back on track, no evidence has been presented to confirm that is true.
That said, some other deals are reportedly in the works that could signal a semi-revival of consumer tech IPOs. Alibaba plans to explore IPOs for the six independently run companies that will be the outcome of its reorganization, while JD.com plans to sell shares in property and industrial units. According to The Wall Street Journal, each of those units aims to raise about US$1 billion.
Further, HKEX recently adjusted its IPO rules in a bid to attract more tech listings. The addition of a Chapter 18C to Hong Kong’s listing rules will allow companies with at least HK$10 billion (US$1.3 billion) in valuation to sell shares in IPOs, even if they have no sales revenue.