Hong Kong’s exchange vies to regain top IPO spot, opens US office

The bourse saw a fall of 68% in total IPO proceeds last year compared to 2021, but capital markets have shown signs of recovery.

Hong Kong Exchanges and Clearing (HKEX) has announced the establishment of its first US office in New York. The move is the latest demonstration of the bourse’s determination to regain its top spot among major exchanges, after falling to 10th place in IPO market rankings in the middle of last year.

In 2022, Hong Kong’s main board saw 90 listings (89 new listings plus one transfer from GEM) raise a total of HK$104.6 billion ($13.4 billion), according to HKEX data. This is down from 98 IPOs (-9%) and HK$328.9 billion (-68%) in total proceeds, in 2021.

Nonetheless, a rush of listings in December enabled the exchange to end up in tied-fourth place with Korea, in EY’s ranking of exchanges by proceeds raised, explained Terence Ho, partner and Greater China IPO leader at EY. The competitors lagged behind Shanghai and Shenzhen.

“Compared to the mainland exchanges, Hong Kong was more affected by the economy and fluctuations in capital markets. And that’s why HKEX, like major exchanges, saw a significant downturn in 2022,” he told FinanceAsia.

For comparison, Ho shared that Nasdaq, which previously consistently ranked in EY’s top three, dropped to 10th place last year, with a total of $5.4 billion raised.

“In 2023, we believe that the activity [in Hong Kong’s capital markets] will be better, because of the recovery of global capital markets,” he said.

In addition, the easing of domestic Covid-19 policies from December 2022 and the resumption of cross-border travel is expected to help revive confidence in the market and boost the economy, particularly in key sectors such as retail, consumer products and hotels.

EY expects funds raised in 2023 to be close to HK$200 billion, Ho said. While the firm has not yet released its own forecast on the number of IPOs, this is expected to be in line with those of other firms -- around 110 IPOs.

The new US base will “help us to expand our international footprint by promoting Hong Kong’s financial markets and providing on-the-ground services to our international clients in their time zone,” a spokesperson for HKEX told FA. The bourse also has international offices in Shanghai, Beijing, and Singapore.

Opened in December, the new location is led by managing director and head of business development for North America, Roger McAvoy, who the spokesperson confirmed recently relocated to New York. The contact did not to disclose how many people it planned to onboard at the location, also declining to share further details on plans to open an office in Europe, which was hinted at in the release.

However, mainland China is expected to remain the biggest source of public offerings for the HKEX.

“Over 90% of IPOs came from mainland China in 2022 – this will stay about the same in 2023,” Ho said.

On sectors that will drive activity in Hong Kong this year, Ho highlighted technology, media, and telecom (TMT) as the dominating source of new listings, followed by biotech, retail and consumer products, and materials.

Targetting high-tech

In October, HKEX outlined proposed changes to its listing rules for specialist technology companies, hoping to increase access to the market for firms in new sectors. Experts welcomed the consultation paper, likening it to Hong Kong’s earlier Chapter 18A rule for biotech companies, but questioned the number of tech companies that would be able to meet the new thresholds.

“We believe the minimum valuation requirement (of HK$8 billion for commercial companies and HK$15 billion for pre-commercial companies) is too high,” EY’s Ho shared.

This is based on EY research that finds the percentage of companies listed on China’s high-tech firm-focussed Star market that successfully meet the valuation threshold, to be less than 30%.

“I understand from friends close to HKEX that it’s very likely they will lower the requirements – by how much depends on how the exchange liaises with the regulator, the Securities and Futures Commission (SFC), whose role it is to be concerned about investor protection, governance and risk.”

A decision on the new framework is expected to be announced in January, with the new rules likely to be implemented in the spring, he said.

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