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New listings in China are breaking records even as turbulent markets cast a pall over the global initial public offering business.
The disconnect shows how markets in Shanghai and Shenzhen remain relatively shielded from developments elsewhere, bankers say, despite the fact that foreign buyers have increased their investments in mainland China in recent years.
IPOs in China raised more than $33.8 billion so far this year, up from more than $30.4 billion a year earlier, according to Dealogic. This year’s tally is the highest figure since at least 2009, according to Dealogic. That is the year when the data provider began giving banks league-table credit for work on onshore listings, after the market was opened to non-Chinese bookrunners.
The figures include both primary listings—for companies whose stock wasn’t previously trading anywhere—and secondary listings by companies that already had a presence on another exchange.
In contrast, the global dollar value of IPOs fell 71% to more than $90.2 billion over the same period. In Hong Kong, IPO volumes have tumbled 92% from a year ago to nearly $2.2 billion, the lowest point since 2009.
Investors have balked at putting money into new listings globally. Surging inflation, rising interest rates, Russia’s invasion of Ukraine and uncertainty over the trajectory of the Covid-19 pandemic have put pressure on world stock and bond markets. Shares in fast-growing technology companies—a mainstay of IPO markets in recent years—have been among the hardest hit.
While estimates of Chinese growth have fallen—due in part to strict lockdowns—and the benchmark CSI 300 index has fallen about 15% this year, issuance has proven resilient.
“China’s capital markets have been relatively more stable than those across much of Asia, on the basis that they’re less susceptible to external shocks,” said Selina Cheung, co-head of Asia equity capital markets at
UBS.
Ms. Cheung said the bank had a healthy pipeline of candidates for IPOs in mainland China and overall issuance was likely to remain strong, as many investors have begun to look past the effects of Covid-19 restrictions on businesses. She added that investors are also anticipating the government will implement more policies that support growth.
High trading volumes are also supportive for the market, bankers say, because this liquidity helps give investors confidence they can trade in and out of newly public stocks rapidly if needed.
Another driver is that Chinese companies typically have to undergo a long approval process before listing on a domestic exchange and are therefore eager to join the public markets once they get the go-ahead.
“Usually when the issuer gets the green light from the regulator, they tend to go in the first window possible,” said Cathy Zhang, head of China equity capital markets at
Morgan Stanley.
For their part, investors have tended to enjoy good returns on onshore stocks, or A shares, Ms. Zhang added.
“That’s one of the reasons we continue to see investors engaged in A-share IPOs,” she said.
New listings on China’s main boards are usually priced at modest levels, with an unwritten rule capping their valuation at listing.
This year’s biggest mainland listing was the $4.4 billion debut in April of energy giant
Cnooc Ltd.
The company, whose shares also trade in Hong Kong, was delisted from the New York Stock Exchange last year due to an investment ban introduced by former President
Donald Trump.
Cnooc’s Shanghai-traded shares have risen 81% from their IPO price.
A Cnooc gas station in Shanghai in 2021.
Photo:
Qilai Shen/Bloomberg
Bankers and lawyers say new listings could also pick up later in the year in Hong Kong, which is traditionally a major destination for offshore listings by mainland Chinese companies.
Regulators in Beijing and Washington have stepped up their scrutiny of Chinese companies that are listed in the U.S., or firms that plan to list there. That has increased the appeal of Hong Kong as an alternative destination. A dispute over access to audit papers could lead to Chinese companies being booted off U.S. exchanges as soon as next year.
For deals to resume broadly, however, global markets need to grow less volatile. Investors also have a range of concerns about China, including economic growth, technology regulation, Covid-19 policy and U.S.-China audit negotiations. And China has yet to publish finalized rules on offshore listings, which will include Hong Kong.
The city’s exchange operator,
Hong Kong Exchanges & Clearing Ltd.
, has said it had 170 active applications as of the end of May for IPOs on its main board.
International share sales from China “could be the story of the second half,” if those IPOs start to appear, said Udhay Furtado, co-head of Asia-Pacific equity capital markets at
Citi.
“There are some very big deals in that pipeline,” he said.
Write to Dave Sebastian at [email protected]
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