Global IPO momentum disrupted amid pandemic; number of 1Q IPOs and funds raised in Hong Kong and mainland China remain steady
Healthcare/life science, TMT companies draw investors' attention during COVID-19 outbreak
STAR Market continues its momentum
HONG KONG, March 31, 2020 /PRNewswire/ -- While global IPO momentum has been disrupted due to the ongoing pandemic, fundamentals in Hong Kong and mainland China IPO markets remain steady overall. The number of IPOs in Hong Kong in the first quarter increased compared with the same period last year, as positive sentiment carried over from late 2019. However, as the COVID-19 outbreak persists, volatility in the economy might impact IPO activity volume, deal valuations and access to capital at least in the short term until the situation improves, according to KPMG analysis.
Global funds raised have increased by 54 percent compared to the same period last year despite market uncertainties. The US, mainland China and Hong Kong remained key contributors to the IPO market globally in the first quarter. The Hong Kong Stock Exchange placed fifth in terms of funds raised, while the Shanghai Stock Exchange claimed the top spot due to a sizeable listing and the continuing popularity of the STAR Market. Others ranked in the top five include NASDAQ, NYSE and the Stock Exchange of Thailand. However, looking ahead, high volatility in global stock markets due to sharp increases in confirmed COVID-19 cases in the US and Europe could significantly affect global economies and IPO activities.
Paul Lau, Partner, Head of Capital Markets, KPMG China, said: "The speed of an economic turnaround will depend on various factors, including an effective handling of the COVID-19 outbreak and its financial impact as well as continuing progress in addressing other global economic uncertainties."
The Main Board recorded 35 new listings for a combined HKD 14.1 billion during the quarter. The number of completed Main Board IPOs is higher than the same period for the past five years. However, funds raised decreased approximately 32% in the first quarter compared with the same period last year due to a lack of sizeable deals.
The infrastructure/real estate sector continued to lead the market, both in terms of number of listings and total funds raised, and is expected to remain strong, driven by increased infrastructure needs for Hong Kong and the rest of the Greater Bay Area.
Irene Chu, Partner, Head of New Economy and Life Sciences, KPMG China, added: "Despite market uncertainties, the new economy, technology, healthcare and life sciences will remain attractive as COVID-19 has drawn investors' attention to the urgent need to drive R&D for better technologies, whether in diagnostics, treatment or supporting recovery for patients facing disease."
Hong Kong's IPO market continues to enhance its competitiveness, with the Hong Kong Stock Exchange launching a consultation paper for corporate weighted voting rights ("WVR"). Upon finalisation, a wider scope of WVR companies would be drawn to the Hong Kong capital market, strengthening Hong Kong's market fundamentals and driving its long-term competitiveness.
The impact of slowing market activity will continue to affect the number of IPO listings and amount of funds raised. Alibaba's IPO in Hong Kong last year is expected to encourage other mega-sized Chinese technology companies listed overseas to follow suit. TMT companies meanwhile see an increasing reliance on services such as teleconferencing, virtual classrooms and online trading platforms.
The A-share market is expected to complete 53 new listings for a combined RMB 80.6 billion in the first quarter, representing a 217% increase in terms of funds raised when compared to the same period last year. The strong performance is due to the sizeable listing of Beijing-Shanghai High Speed Railway and the continuing popularity of the STAR Market as an IPO venue.
Following its strong start in 2019, the STAR Market upheld its momentum in 2020 with 24 listings raising RMB 29.4 billion in the first quarter, representing 36% of the total A-share funds raised.
Louis Lau, Partner, Capital Markets Advisory Group, KPMG China, noted: "The STAR Market reached multiple milestones in the first quarter, including having certain pre-profit entities and the first companies with WVR and red-chip structures to list. The STAR Market's accommodation of a greater range of companies signals its commitment to support the development of innovative companies in mainland China."
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