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Competitiveness of the Hong Kong Stock Exchange as IPO Market

posted 1 year ago

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)

 

 

First 9 months of
2022

2021

2020

2019

Number of IPOs[3]

            55
● Main Board:
● GEM:

55
0

            98
● Main Board:
● GEM

97
1

          154
● Main Board:
● GEM:

146
8

          183
● Main Board:
● GEM:

167
16

Number of withdrawal of listing (by privatisation or otherwise voluntary)

            13
● Main Board:
● GEM:

12
1

            30
● Main Board:
● GEM

27
3

            26
● Main Board:
● GEM:

24
2

            10
● Main Board:
● GEM:

10
0

Number of listings cancelled by HKSE

            33
● Main Board:
● GEM:

25
8

            34
● Main Board:
● GEM:

21
13

            31
● Main Board:
● GEM:

23
8

            19
● Main Board:
● GEM:

13
6

Source: HKEx

 

 

 

 

 

 

 

 

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)

 

 

First 6 months of
2022

2021

2020

2019

 

 

By no. of
IPOs

By
proceeds

By no. of
IPOs

By
proceeds

By no. of
IPOs

By
proceeds

By no. of
IPOs

By
proceeds

1st

 

Shenzhen

Shanghai

NASDAQ

NASDAQ

Shanghai

NASDAQ

Hong Kong

Hong Kong

2nd

 

Shanghai

Shenzhen

Shanghai

New York Stock Exchange

NASDAQ

Hong Kong

NASDAQ

Saudi

3rd

 

India

South Korea

Shenzhen

Shanghai

Shenzhen

Shanghai

Shanghai

NASDAQ

4th

 

NASDAQ

Dubai

Australia

Hong Kong

Hong Kong

New York Stock Exchange

Tokyo

Shanghai

5th

 

Tokyo

India

NASDAQ
OMX and
First North

Shenzhen

Tokyo

Shenzhen

Shenzhen

New York Stock Exchange

Others

 

Hong Kong ranks the 10th

Hong Kong ranks the
9th

Hong Kong ranks the 10th

 

 

 

 

 

Source: EY global IPO research

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)

 

2021

2020

2019

IPO proceeds raised by all IPOs in the year

US$42.5 billion

US$51.3 billion

US$40.3 billion

IPO proceeds raised by the top two IPOs

US$9.8 billion

US$8.8 billion

US$18.8 billion

Percentage represented by the top two IPOs

23%

16%

46%

Source: HKEx

 

 

 

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)

 

First 9 months of
2022

2021

2020

2019

New listings

Number of IPOs

            55
● Main Board:
● GEM:

55
0

            98
● Main Board:
● GEM:

97
1

          154
● Main Board:
● GEM:

146
8

          183
● Main Board:
● GEM:

167
16

New vs. renewed listing applications

Number of new applications accepted by HKSE during the relevant period[6]

          153
● Main Board:
● GEM:

150
3

          316
● Main Board:
● GEM:

304
12

          231
● Main Board:
● GEM:

216
15

          300
● Main Board:
● GEM:

255
45

Number of renewals of applications accepted by HKSE within three months from lapsed, rejected or withdrawn applications made by the same applicants

          130
● Main Board:
● GEM:

124
6

          140
● Main Board:
● GEM:

127
13

          166
● Main Board:
● GEM:

142
24

          218
● Main Board:
● GEM:

170
48

Status of listing applications

Number of active applications under HKSE’s processing as at the end of the relevant period

          114
● Main Board:
● GEM:

107
7

          131
● Main Board:
● GEM:

123
8

            92
● Main Board:
● GEM:

81
11

          126
● Main Board:
● GEM:

100
26

Number of lapsed, and withdrawn applications during the relevant period

          219
● Main Board:
● GEM:

209
10

          286
● Main Board:
● GEM:

257
29

          265
● Main Board:
● GEM:

218
47

          366
● Main Board:
● GEM:

285
81

Source: HKEx

 

 

 

 

 

 

 

 

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.

————————————————————-

[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.

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