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Hong Kong’s dry spell for IPOs set to end with big deals in China

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(Bloomberg) – After a dismal first half, things are finally looking up for initial public offerings in Hong Kong as several major Chinese companies line up to list in the Asian financial hub in the second half.

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Battery materials producer Tianqi Lithium Corp. just opened its books for what is expected to be the city’s first billion-dollar contract this year, while China Tourism Group Duty Free Corp. could raise a bid of around $2 billion.

With several other medium to large deals in the works, they are poised to revive a dormant market where companies raised a meager $2.6 billion between January and June. That’s a 92% drop from a year ago and the lowest sum for the same period since 2009.

Upcoming trading rally signals improving valuation environment as easing of virus-related restrictions and Beijing’s backlash on corporate crackdowns spur a global equity rally in China and Hong Kong . Greater clarity in the rules for overseas Chinese stock offerings could also “encourage more new listings” in Hong Kong, Charles Zhou, an analyst at Credit Suisse Group AG, wrote in a note last month.

The flow of positive news from China propelled the benchmark CSI 300 into a technical bull market and analysts expect more constructive policy reinforcements in the second half.

“If that happens, it would hopefully help move forward some of our equity trades that are waiting for a better market window to open,” said Selina Cheung, co-head of equity capital markets. Asia at UBS AG in Hong Kong.

In the first half of the year, Hong Kong had only one IPO over $500 million. It was January and the majority of companies that started this year are trading underwater. Notably, IPO activity has dried up globally as investors worry about inflation, hawkish central banks and fears of recession.

window of opportunity

Hong Kong’s dry spell now looks set to end with a flurry of small deals in late June as issuers rush to take advantage of a short window favoring Chinese equities.

Tianqi Lithium’s potential $1.7 billion listing paves the way for July to be the strongest month for IPOs in the Asian financial hub this year. The pipeline of deals of around $500 million or more also includes snack maker Weilong Delicious Global Holdings Ltd. and Wego Blood Purification, the dialysis unit of the Chinese group Wego. China’s Imeik Technology Development Co., which has a market capitalization of $19 billion, has also applied to list on the HKEX.

Greater regulatory clarity from Beijing for companies planning to sell their shares overseas will also be key going forward.

Read a QuickTake on China’s Overseas IPOs

Many potential listings are already trading in New York, but are trying to lure investors closer to home for fear of being kicked out of the United States due to the regulatory standoff with the United States.

Such is the case of consumer goods retailer Miniso Group Holding Ltd., which is seeking up to $116 million. Others have chosen to go public in Asia through an IPO, a mechanism that does not involve the sale of new shares.

A number of companies have been “continuously” working on their IPO plans while waiting for a market window to reach ideal valuations, said Shi Qi, head of ECM at China International Capital Corp. wellness could see better opportunities in the market,” she said, citing themes such as carbon neutrality, environmental governance, new energy, consumption and healthcare.

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