Competitiveness of the Hong Kong Stock Exchange as IPO Market

By Rossana Chu:  

“Some people resign and return to their hometowns,
while others rush to the examination field overnight.”

~ This proverb from a 300-year-old Chinese poem perfectly illustrates
the phenomenon of the Hong Kong stock market during the past few years.

The Stock Exchange of Hong Kong Limited (HKSE) has been putting a lot of efforts on maintaining the competitiveness of Hong Kong as an attractive international stock market. Yet, there is an increasing number of voluntary listing withdrawals and some of them are of a good size. Also, involuntary delisting is being actively enforced by HKSE.

In Hong Kong, the recent initial public offerings (IPOs) as well as the stock price performance of most listed companies are not up to expectation. Still, there are many ways we may do better to enhance Hong Kong’s IPO market.

Hong Kong IPOs vs. delisting

Table 1 summarises the statistics provided by Hong Kong Exchanges and Clearing Limited (HKEx)^[1] on IPOs and delisting:^[2]

Table 1 – Statistics on Hong Kong IPOs and delisting (Q1 2019 – Q3 2022)

Some interesting observations can be drawn from Table 1. IPO numbers decreased continuously from 2019 to 2022. GEM IPOs dropped sharply from 16 in 2019 to 8 in 2020, and further to almost nil in 2021 and 2022. On the other hand, the initiatives in taking listed companies private continued to rise in Hong Kong from 2019 to 2021.

HKSE is also active in taking companies down from the exchange in accordance with the delisting regime under the listing rules. The occasions of listing status cancellation increased from 19 in 2019 to more than 30 in each of 2020, 2021 and 2022. Although GEM listed companies represented a small proportion in IPOs and privatisations, they constituted 30% to 60% of the cases delisted by HKSE.

Hong Kong’s position in the international IPO markets

According to EY global IPO research,^[4] the positioning of Hong Kong has changed over the past years as summarised in Table 2.

Table 2 – Hong Kong’s position as a leading international stock exchange (Q1 2019 – Q2 2022)

It is fair to conclude that Hong Kong’s position as a leading international stock exchange has been declining since 2019. US exchanges remained strong in 2019 to 2021, but were overtaken by Asia exchanges including those in Shanghai and Shenzhen in terms of both deal number and IPO proceeds.

Hong Kong attracted some mega IPOs in recent years, including Alibaba (IPO size of US$13 billion) and Budweiser APAC (US$5.8 billion) in 2019, JD.com (US$4.4 billion), JD Health (US$4 billion) and NetEase (US$3.1 billion) in 2020, and Kuaishou Technology (US$6.2 billion) and JD Logistics (US$3.6 billion) in 2021.^[5] The top two IPOs alone constituted substantial proportion of the whole-year IPO proceeds size, as shown in Table 3 below.^{[2] and [4]}

Table 3: Statistics on IPO proceeds (Q1 2019 – Q3 2022)

Hong Kong listing applications

• Statistics

In respect of listing applications, HKSE’s statistics are summed up in Table 4:^[2]

Table 4: Statistics on listing applications (Q1 2019 – Q3 2022)

From Table 4 above, few remarkable phenomenon can be observed. The combined count of new and renewal applications in each year far exceeds the IPO number of the subsequent year. That essentially means more than half of the applications were unsuccessful. This is also confirmed by the high volume of lapsed, rejected, returned and withdrawn applications in each year – failed cases are much more than active applications in any of the periods captured in Table 4.

In Hong Kong, a listing application has a validity period of 6 months, i.e. it will expire if the applicant is not listed within 6 months. In such a case, if the applicant does not let the application lapse and prefers to keep the case alive, it has to renew its application. Renewals can be made for more than one time. The relatively high number of renewals suggests that many applications cannot be cleared within 6 months.

• Unsuccessful listing applications

Let us take a closer look at the reasons of unsuccessful listing applications from the official information provided by HKEx in Table 5…  READ FULL ARTICLE

First published on ALB website on 22 December 2022.

Note: This material has been prepared for general information purposes only and is not intended to be relied upon as professional advice for any cases. Should you need further information or legal advice, please contact us.

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[1] HKSE is a subsidiary of HKEx.

[2] HKSE’s reports on Initial Public Offering Applications, Delisting and Suspensions:
Report on Initial Public Offering Applications, Delisting and Suspensions (As at 30 September 2022) (hkex.com.hk)
Report on Initial Public Offering Applications, Delisting and Suspensions (As at 31 December 2021) (hkex.com.hk)
Report on Initial Public Offering Applications, Delisting and Suspensions (As at 31 December 2020) (hkex.com.hk)
Report on Initial Public Offering Applications, Delisting and Suspensions (As at 31 December 2019) (hkex.com.hk)

[3] Presentations made by top executives of HKEx:
For 2022 Q3: https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Release/2022/221019news/2210192news/2022-Q3-Results-Announcement-Presentation_e_1019.pdf
For 2021: https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Release/2022/2202243news/2202243news.pdf
For 2020: https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Release/2021/2102243news/2102243news.pdf
For 2019: https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Release/2020/2002263news/2002263news.pdf

[4] https://www.ey.com/en_gl/ipo/trends

[5] https://www.hkex.com.hk/-/media/HKEX-Market/News/News-Release/2022/2202243news/2202243news.pdf

[6] The numbers of new listings exclude listings of investment vehicles such as Exchange Traded Funds, Real Estate Investment Trusts, collective investment schemes and investment companies, and also exclude transfers of listing from GEM to the Main Board.