A-share IPOs remain curbed in the short term; Hong Kong IPO market has shown signs of rebound, filings seeing significant increase

• In 1H 2024, global IPO activity continued to slow down, with a 15% and 17% decrease year-over-year (YOY) by number of deals and proceeds respectively.
• “Hard-tech” companies remained the mainstay of IPOs.
• The implementation of the new “Nine National Articles” will shape the A-share market, and more mainland companies are expected to list in Hong Kong.

EY Greater China Region releases the Chinese mainland and Hong Kong IPO report today, reviewing IPO activity in 1H 2024 globally and in Greater China, as well as its outlook for 2H 2024.

According to the report, as central banks continued to control inflation and interest rates remained high, keeping the cost of capital elevated, global IPO activity saw a continued slowdown in 1H 2024. A total of 532 companies were listed globally with proceeds of US$51.7 billion, down 15% and 17% in deals and proceeds, respectively, compared to the previous year.

The U.S. and Indian markets slightly outperformed others in IPO activity. The top two global IPO fundraisers were from the New York Stock Exchange and the Nasdaq with proceeds of about US$17.9 billion. The Indian market led the world in IPO number significantly with 141 deals, compared to 53 deals on the Nasdaq, ranked second in IPO number. Most of the top 10 global IPOs were listed in the U.S., led by the retail and consumer goods, along with technology sectors.

A-share: Further tightened criteria for IPO

In 1H 2024, 44 companies were listed on the A-share market, raising RMB 32.9 billion. The number of IPOs and proceeds dropped 75% and 84% YOY, respectively. ChiNext and the Shanghai Main Board led in deals and proceeds. In 1H 2024, Specialized, Refinement, Differential and Innovation (SRDI) companies¹ accounted for 48% of IPO deals and 35% of proceeds, respectively, hitting a record high for the same period.

“Hard-tech” industries, such as industrials, technology and materials dominated IPOs, accounting for 89% and 88% of the number and proceeds respectively in 1H 2024.

Regulatory policies in the capital market continued to strengthen, tightening the requirements for IPO, reducing the A-share IPO pipelines from 767 at the end of 2023 to 526 by 10 June 2024. Proactive withdrawals accounted for 97% of growing terminated A-share IPOs². The number of first-time IPO filings also dropped drastically, with only two companies filing by 10 June. Ringo Choi, EY Asia-Pacific IPO Leader says: “Tightening IPO requirements helps distinguish companies that are more competitive and with greater growth potential. The market will focus on the strengthening of regulations, mitigating risks and promoting high-quality development, leading to positive changes in the IPO ecosystem.”

In terms of IPO pricing, with tightly regulated high pricing, debut P/E in 1H 2024 declined YOY. Only one IPO had negative first-day returns, while overall IPO first-day returns rose sharply YOY. Choi says: “Several Opinions on Strengthening Supervision, Preventing Risks and Promoting High-Quality Development of the Capital Market (the new ‘Nine National Articles’) aim to improve supervision of issuance and underwriting, further regulate the process throughout inquiry, pricing and placing of new shares, and address issues like over-subscription and price suppression.”

Hong Kong: Recovery signs lead to an uptick in investor enthusiasm

In 1H 2024, 28 companies listed on the Hong Kong market with proceeds of HK$12.1 billion. The number of deals and proceeds declined by 3% and 32% YOY, respectively. Due to high interest rates and slowing global economic growth, companies were more cautious in filing for IPOs and the number of shares offered. However, in Q2 2024 especially since May, as the Hong Kong stock market rebounded, liquidity and other market indicators improved, boosting investor confidence. The number of deals and proceeds in Q2 were up 33% and 52% QOQ respectively.

In 1H 2024, 92% of Hong Kong IPOs were oversubscribed, up 6 percentage points YOY. IPOs listed in Hong Kong market were 196 times oversubscribed on average, compared to 8 times in the prior period. During the period, the Main Board IPO with the highest oversubscription was 432.34 times oversubscribed, compared to 33 times in the prior period.

Technology companies led in deals and proceeds, including the first specialist technology companies under Chapter 18C.

Chinese mainland companies continue to dominate the Hong Kong IPO market in 1H 2024. Since 2H 2023, many Chinese mainland companies have enquired about or initiated IPO projects in Hong Kong, and this trend has grown even stronger this year. “Some have been planning to list in Hong Kong for a long time, while others have chosen to 'reroute' to Hong Kong given the current regulatory environment. For Chinese mainland companies, the processing time of getting listed in Hong Kong is shorter and of higher certainty,” says Jacky Lai, EY³ Hong Kong Capital Market Service Spokesman.

A-share IPO activity remains tight in the short term, while Hong Kong IPOs expect the number of filings to increase significantly in Q3

IPO activities are expected to see a gradual recovery as a result of the “1+N” policy framework and its development for the capital market. The vetting effect from the tightened measures is, however, expected to stay for the short run. Peter Chan, EY Hong Kong TMT Assurance Leader believes that the implementation of the New ‘Nine National Articles’ will be pivotal. Regulatory support for high-quality technology companies will remain strong and become more specified. High-quality companies with strong tech features and eligible for listing will be the first to start their IPO process. “Hard-tech” companies with core technologies will remain key drivers for IPOs in 2H.

As for Hong Kong IPOs, the China Securities Regulatory Commission (CSRC) introduced Five measures on capital market cooperation with Hong Kong in April, supporting the listing of leading mainland companies in Hong Kong. The pace of mainland companies “rerouting” from A-shares to Hong Kong has accelerated. The size of IPOs is expected to expand with the listing of Chinese mainland industry leaders in Hong Kong. Lai adds: “There has been increasing Pre-IPO work by Chinese mainland companies preparing for Hong Kong listing since March and April. The number of filings is expected to rise significantly in Q3. In addition to capitalizing on the window of Chinese mainland companies’ Hong Kong listing, the HKSAR Government and regulators have played important roles to continue enhancing the competitiveness of the Hong Kong market, including improving the trading efficiency and stock market liquidity, and attracting companies from the Middle East and Southeast Asia to list in Hong Kong.”

¹ Source: Wind, referring to the listed enterprises in the latest list of SRDI “little giant” enterprises announced by Ministry of Industry and Information Technology or companies with shares or controlling shares in such companies

² The data of termination and suspension excludes listed companies and companies that have resumed vetting or resubmitted application after suspension/termination of examination

³ Ernst & Young

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About the data

The data presented in the press release are based on priced IPOs from 1 January to 12 June 2024 , and expected IPOs by 30 June 2024. Sources of data include EY statistics, Wind, the China Securities Regulatory Commission, and Hong Kong Stock Exchanges.