Greater China leads global market in 2015 with 372 IPOs

US$60.3 billion was raised.

Greater China once again led the global market for initial public offerings (IPOs) with 372 IPOs raising US$ 60.3 billion, amid the global market experienced divergent performance across regions in a higher volatility environment and a greater range of financing options now available.

According to a release from EY, this is based on its Global IPO Market Study Report: 2015 review and 2016 outlook. Despite a rollercoaster ride in 2015, the Mainland A-share market is expected to have a rewarding year ahead following the rolling out of a number of favourable policies. In Hong Kong, IPOs by number of deals has set a new record, and the amount of funds raised from IPOs has surged to a five-year high.

In the first half of 2015, Shenzhen Stock Exchange topped the world by number of IPOs and Shanghai Stock Exchange ranked second globally by funds raised, amid full speed IPO approval by regulators and a strong stock market. In early July, as a result of the stock-market crash, regulators have taken a number of market stabilizing measures which included the suspension of IPOs. IPO resumed when the stock market stabilized in November.

EY Asia-Pacific IPO Leader Ringo Choi, says, “As IPO resumes, the A-share market is now back on track for its reform. The capital market may now continue to play its role in funding and driving the growth of emerging companies. The regulators would further optimize the system for new shares issue and ensure a smooth transition to a registration-based regime, step by step.”

According to EY’s report, there were a total of 219 IPOs in Mainland’s A-share market, raising RMB158.6 billion, an increase of 75% and 102%, respectively, from 2014. By sector, industrials and TMT (technology, media and telecom) ranked first and second by number of deals, representing 34% and 20%, respectively, of total IPOs, echoing the Chinese government’s top priorities of “Internet Plus” and “Made in China 2025”. In terms of funds raised, blockbuster securities traders pushed the financial sector to the top, with RMB44.7 billion, or 28% of total funds raised.

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Ringo continues, “Returns on new shares to-date averaged 473% in 2015 (based on issue price and market price at close of business on 24 December 2015). The exceptional performance has positioned the market as a clear winner globally despite the market volatility in July and August. After IPO resumed, returns on the first trading day of all new shares have closed at a daily cap of 44%, keeping the trend we saw before the IPO suspension. This reflected that the strong appetite of investors for IPO new shares has remained unchanged.”

IPO activity in the Hong Kong market in 2015 has been impressive, setting a new record by number of deals and funds raised at a five-year high.

According to a release from EY, there were a total of 121 IPOs in Hong Kong raising HK$261.4 billion, up 11% and 12%, respectively, from 2014. Once again, Hong Kong has led global exchanges by IPO funds raised.

EY Assurance Partner Dilys Chau says, “The exceptional performance of the Hong Kong market in 2015 was underpinned by large enterprises from Mainland. Of which, non-commercial bank financial institutions accounted for over 60% of total funds raised by the top 10 IPOs.

Following the last wave of large commercial banks, issuers from the financial sector this time were from a diverse sub-sector including securities trading, insurance and asset management.”

On the other hand, the number of new listings on GEM also increased substantially in 2015, with 34 deals, a high since 2003, and total funds raised of HK$274 million, an increase of 27% from 2014. There were 14 issuers migrating from GEM to Main Board, a high since 2008 when the rules for board migration was relaxed. The top three sectors for these “migrants” were TMT, retail and consumer products and health.

The IPO market in Taiwan was also impressive in 2015, with funds raised up 44% year-on-year and an increase in number of deals by 17%. Of the 20 new listings, 8 were F-share companies with funds raised of TW$7.61 billion. Issuers from the biomedical and technology sectors dominate.

EY expects number of deals to decline in 2016, with better quality.

Ringo continues, “In 2016, the rolling out of the registration-based regime, the optimization of the multilayer capital markets system and the further untightened capital market rules would take the Mainland IPO markets to the next level. At present, the regulators and the exchanges are working on the detail implementation rules and regulations for the registration-based regime.

We believe that the restrictions on new share issuance would be lifted step by step, so as to avoid a huge supply of new shares all in a sudden. The rolling out of the registration-based regime would affect all aspects of the A-share market, including more stringent delisting mechanism, more efficient new shares issuance and resting professional parties with more responsibilities and liabilities.”

With “mass entrepreneurship and innovation” included in “the 13th Five-Year Plan”, SMEs would continue to be the main force of IPO activity in 2016. Industrials and TMT ranked first and second by sector among the companies that have filed a listing application, retail and consumer products and health ranked fourth and fifth. Although they constitute only a small number, regional commercial banks are forecasted to be the blockbuster sector by funds raise among companies seeking listing in the A-share market.

In Hong Kong, 46 companies have submitted their applications to the Hong Kong exchange for listing. These applicants were from the financials, TMT, retail and consumer products, construction and various other sectors. It is expected that more companies from these sectors would submit listing application and completing their IPOs in 2016. Of which, there would be a giant Mainland financial institution, several other large ones, and one or more “unicorn” companies.

Ringo says, “It is worth mentioning that, in November, the Hong Kong exchange issued a guidance letter on distribution of assets of listed company. In December, the Hong Kong exchange further amended its listing decision, such that a “cash company” with its assets over half being cash will not be regarded as suitable for listing and application for resumption of trading will be considered as new listing application.

This signals that the Hong Kong exchange is tightening its rules on “back door” listings, which may include the listing application of “shell” suspects. Therefore, EY forecasted that IPO activities may decline by number of deals, with better quality, to 110 deals and total funds raise of HKD260 billion, as companies preparing will complete a full swing with their Hong Kong IPO. However, there may be difficulty years ahead after this wave when companies in the pipeline are listed next year, amid challenges from Mainland exchanges when IPO resumes and the introduction of the registration-based regime.”

Dilys concludes, “In the year ahead, there are many challenges for the Hong Kong market, which include the global economic slowdown, further interest rate rises in the US, and so on, as the international exchange in Greater China, the Hong Kong exchange is and will continue to be the exchange of choice to many Mainland enterprises.

EY recommends and supports the Hong Kong exchange to scale up and optimize the Shanghai-Hong Kong Stock Connect, to proceed with the Shenzhen-Hong Kong Stock Connect and other innovative “Connect” business models that connect Hong Kong, Mainland and the international markets in order to take the Hong Kong exchange to the next level.”