The Hong Kong stock exchange is on track for its worst quarter for new listings since the early days of the Covid-19 pandemic, after a regulatory crackdown on Chinese tech groups choked the flow of share sales lucrative funds for the city’s stock exchange.
Bankers expected Hong Kong to take over after Beijing made clear its aversion to U.S. listings with a crackdown on Didi Chuxing just after the rideshare company’s debut in the U.S. market in June.
But bankers and analysts say lingering uncertainty over Hong Kong’s status as a listing destination in Beijing’s eyes, along with a host of other factors, has blocked those plans.
“This year is kind of a washout,” admitted the Asia-Pacific capital markets manager of a Wall Street investment bank, adding that most banks and brokers didn’t expect a rebound before. the first quarter of 2022 at the earliest, with hungry negotiators. for clarity from Beijing on its new regime for offshore listings.
Chinese tech groups have raised just $ 671 million on Hong Kong listings in the past three months. Total new listings also raised $ 6.5 billion, down nearly 60% year-over-year, according to Dealogic data. It marked the worst performance on both counts since the first quarter of 2020, when the Covid-19 pandemic ravaged global markets for the first time.
Stocks already listed in Hong Kong also suffered a rough patch. The Hang Seng Index has fallen about 10% this year, reflecting regulatory action against Chinese tech groups that increasingly dominate its ranks, while the Hang Seng Tech Index has fallen by more than a quarter despite a rally for global tech stocks.
Analysts said the selling and freezing of IPOs underscored Hong Kong’s vulnerability to continued crackdown on China’s tech sector, which has become a vital source of IPOs for the city after the stock exchange revised its prices. listing rules in 2018.
” Short term. . . I don’t think we’re going to see a ton of pressure to get the IPO flow to restart in Hong Kong, ”said Thomas Gatley, Beijing-based analyst at Gavekal Dragonomics, highlighting statements by Chinese regulators on preventing harm. “Capital expansion troubles”.
Gatley said a move of tech IPOs from New York to Hong Kong is unlikely ever to happen as quickly as bankers have hoped – although it is likely “over the next two years.” But for start-ups pivoting to Hong Kong, increased regulatory risk and the beating of Chinese tech stocks means that “however you price them, they’re going to look for lower valuations.”
The advantage Hong Kong gains will largely depend on revisions to China’s foreign listing regulations, which the country’s securities regulator is due to submit to key officials in Beijing for approval on an undisclosed date.
In July, state media reported that “improving the overseas registration regulatory system” was one of the main tasks discussed at a July meeting of Chinese President Xi Jinping and others. senior officials on political priorities for the second half of 2021.
Bruce Pang, head of research at China Renaissance, an investment bank, said that means the China Securities and Regulatory Commission is likely to submit its reform plan before the end of this year.
But he said the Hong Kong Stock Exchange would likely refrain from releasing long-awaited changes to its own IPO rules until the CSRC plan is made public. This could hamper its ability to quickly capitalize on the queue of Chinese registrations previously destined for New York, many of which could in the meantime decide to register in Shanghai or Shenzhen instead.
The Hong Kong Exchanges and Clearing said it “warmly welcomes IPO applications from any company that meets our listing requirements,” adding that HKEX has more than 200 active listing applications.
“[HKEX] clearly can’t come out and say ‘we’re just going to list anything’, ”said Fraser Howie, an independent analyst and Chinese finance expert. “They have to play with the political directives coming from the continent.”
Howie said Hong Kong’s listing rules for companies in many industries still include requirements for profitability and that all applicants must be reviewed by a rating committee. It’s much stricter than in the United States, where simple disclosure requirements have allowed Chinese companies to raise around $ 35 billion since HKEX reformed its IPO rules.
“It is far from certain that Hong Kong has a bright future or that it will benefit from it as much as people think,” Howie said.