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Enoch Yiu

Fundraising in Hong Kong hit the lowest level in a decade in the first quarter of this year as poor stock market performance hit companies’ plans to list or issue new shares, but the city still remains the largest initial public offering (IPO) market worldwide, according to Thomson Reuters data.
Brokers believe the worst is over, with a stock rebound likely in the second quarter.
“It was a really bad first quarter as the stock markets have been volatile from the beginning of the year while the yuan has devaluated against the US dollar. This has discouraged companies to list or make share placements, and investors have also lost appetite for dim sum bonds,” said Christopher Cheung Wah-fung, lawmaker of the financial services sector.
Falling yuan and worries over China’s slowdown pulled down the Hang Seng Index 10 per cent in January, followed by a drop of another 3 per cent in February, before bouncing back 6 per cent in the first three weeks of March. The benchmark index has thus wiped off all its gains last year.
Hong Kong races past New York to return as top IPO market for first time in four years
Total funds raised in the city’s stock market in the first quarter stood at US$6.61 billion, down 45.9 per cent from the same quarter a year earlier, according to Thomson Reuters data. This is the worst performance since the first quarter of 2006, when just US$3.5 billion was raised in the city.
Among those that tapped the market, 14 companies raised US$3.48 billion in the first quarter through IPO, down 48.5 per cent from the first quarter of last year when 26 IPOs raised US$6.75 billion. This is the worst first-quarter IPO performance since 2013, which saw US$1.10 billion being raised.
“Many of the IPOs this year came from only small players. The big ones preferred to wait for the market to stabilise so that they can price their shares higher,” Cheung said.
Funds raised by existing companies in the first quarter through share placement, rights issues and other means stood at US$2.03 billion, down 62.8 per cent from the same period last year, making it the worst first quarter since 2006 when US$1.67 billion was raised.
The Hong Kong stock exchange, however, remains the top IPO market worldwide in the first quarter, the Thomson Reuters data shown. The local bourse was the largest IPO market worldwide last year as well, as it was from 2009 to 2011.
Why China will avoid a big, destabilising yuan devaluation
The Hong Kong Exchanges and Clearing (HKEx) ranked top worldwide in the first quarter at US$3.48 billion, followed by the London Stock Exchange at US$2.04 billion and the Tokyo Stock Exchange at US$900.4 million. Shanghai ranked fourth at US$600.3 million while Shenzhen Small & Medium Enterprise market came in at seventh with US$480.9 million and Shenzhen’s technology start-up board ChiNext at eighth with US$310.8 million.
“The Hong Kong market is not doing good but it appears other markets are not doing any better,” said Jasper Lo Cho-yan, chief executive of King International Financial
“Global market sentiment has been dented by the US interest rate rise in December that ended the zero rate era and led to fears of more rate rises and capital outflow from emerging markets.”
Besides the stock market, yuan-denominated bonds issued in Hong Kong also hit record low levels since their launch in 2011 as a result of yuan devaluation, which has affected investor appetite.
There were only 25 dim sum bond issues in the first quarter of this year, raising US$1.095 billion, down 90 per cent from a year ago when 181 issuers raised US$10.85 billion.
Lo said the yuan, which lost 5.6 per cent against the US dollar last year and 2 per cent in the first week of this year, has driven away investors. He is, however, upbeat on the second quarter.
Dim Sum bonds brace for impact as Beijing opens onshore bond market to global investors
“The stock market has stabilised of late while the yuan has also bounced back in February. The US Federal Reserve in mid-March said it would only increase interest rates two times this year instead of the four it had planned earlier. These factors would encourage more IPO and dim sum bonds issues,” Lo said.
In the first quarter, Zheshang Bank launched the largest IPO is China, raising US$1.69 billion, followed by Bank of Tianjin, which raised US$948.59 million. Both stocks will start trading on Wednesday.
Mainland Chinese companies remain the major sources of IPOs in Hong Kong, accounting for 92.4 per cent of the funds raised in the city, with the rest coming from local companies.
Haitong Securities led the first quarter in underwriting in Hong Kong, with a market share of 15 per cent and US$1 billion in related proceeds, followed by GF Securities with a market share at 9.3 per cent, and China International Capital with 6.8 per cent.


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Still No 1 in IPOs, but fundraising through stocks and bonds at record lows in Hong Kong

The Hong Kong stock exchange was the largest IPO market worldwide last year and from 2009 to 2011. Photo: AP