INVESTORS in the Hong Kong initial public offering (IPO) of Chinese cosmetics firm Mao Geping Cosmetics received an early Christmas present on Dec 10 when the company made its trading debut – the shares rose as much as 92 per cent before closing the day 77 per cent higher.
It was the best first-day performance in four years and a further sign that the three-year slump in IPOs on the Hong Kong stock market is finally over.
As at Dec 8, 63 companies, mostly from the Chinese mainland, had listed on the Hong Kong Stock Exchange (HKEX) this year, according to a recent report from international accounting firm KPMG.
They raised a combined HK$83 billion (S14.5 billion), 80 per cent more than in 2023, and pushing the exchange back up to fourth place in the global ranking for IPO fundraising.
Of the total, HK$69 billion came in the second half of the year, driven by several sizeable deals, including the four largest IPOs in the past two years, the report said.
It’s a welcome turnaround from 2023, when the city’s IPO market plunged to its worst showing in 20 years and only HK$46.3 billion was raised in total from 73 listings amid poor market sentiment.
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“It’s fair to say that market activity and sentiment have improved significantly compared with six months ago,” said Xu Wenjia, head of Greater China equity capital markets at law firm Linklaters LLP.
According to forecasts by KPMG and its peer EY, IPOs in Hong Kong are set to recover further in 2025, with total fundraising projected to reach HK$100 billion to HK$120 billion, pushing the bourse back to its position among the top three global exchanges in terms of IPO fundraising.
Favourable policies
The turning point for what looked set to be another disappointing year came in September with the blockbuster IPO of home-appliance manufacturer Midea Group.
The company, which listed in Shenzhen in 2013, raised HK$35.7 billion in the largest listing in Hong Kong in three years and the second-largest globally in 2024.
Although the company is in a traditional consumer-focused industry rather than a hot emerging technology sector, demand massively outstripped the shares on offer in the IPO and as at Tuesday (Dec 24), the stock had climbed more than 40 per cent from its offer price of HK$54.80.
Three more major IPOs took place in October and November, each raising more than HK$5 billion – China Resources Beverage, autonomous-driving tech firm Horizon Robotics, and delivery group SF Holding.
This compares with 2023 when only one company, liquor-maker ZJLD Group, raised more than HK$5 billion.
The rebound in the IPO market follows the implementation of a series of favourable policies issued by the HKEX, efforts by mainland regulators to bolster Hong Kong’s position as an international financial centre and support Chinese companies’ international expansion, and an improvement in market sentiment fuelled by a slew of stimulus measures unleashed in late September and early October by the Chinese government.
This year saw the first three companies list under Chapter 18C of the exchange’s listing rules, a new IPO pathway introduced in March 2023 for money-losing specialist technology firms in fields such as next-generation information technology, advanced materials, new energy and new agricultural technology.
Several other companies have submitted listing applications. Hong Kong’s special purpose acquisition company listing mechanism, introduced on Jan 1, 2022, also completed its first merger transaction in October this year.
New regulations on overseas listings for mainland companies, implemented from Mar 31, 2023, were intended to make it easier for them to list in Hong Kong by standardising procedures, clarifying regulatory requirements, shifting to a filing-based regime from an approval-based regime, making the process more transparent.
In April this year, the China Securities Regulatory Commission (CSRC) introduced five measures to enhance collaboration with Hong Kong’s capital markets, including boosting support for companies such as Midea and SF Holding to do their Hong Kong IPOs.
The commission was reported to have held meetings in October with more than 10 international banks and law firms, urging them to help speed up the offshore listings of mainland companies which had already gained CSRC consent to create some “successful cases” of high-profile deals to bolster sentiment in the market.
“Midea’s listing in Hong Kong gave everyone a very positive impression,” said Xu from Linklaters. “The company is in a traditional industry, has an overseas setup, and priced its Hong Kong IPO at a moderate discount to its A-shares, which generated a lot of interest.”
Its success should encourage more firms, especially those with a record not only of stable and sustainable profitability but also of financial disclosure discipline honed by years of oversight from mainland regulators, Xu said.
Mainland magnet
Midea’s listing has paved the way for a string of other IPOs from mainland companies.
SF Holding listed in November, and in December, auto-driving systems maker Ningbo Joyson Electronic, pharmaceutical company Jiangsu Hengrui Pharmaceuticals, and condiment manufacturer Foshan Haitian Flavouring and Food, all announced plans to issue shares in Hong Kong.
Sources have told Caixin that leading battery manufacturer Contemporary Amperex Technology and leading energy-drink company Eastroc Beverage are among others planning Hong Kong IPOs.
Mining companies are also eyeing Hong Kong as a venue to raise money after years of silence, according to Frank Bi, head of corporate transactions practice in Asia at lawyers Ashurst.
They are being seen from a new perspective – as upstream suppliers for new materials, new energy, and hard technology companies, he said. “Moreover, post-pandemic, as China’s Belt and Road Initiative progresses, mining companies are needed for infrastructure development, which will drive greater financing demand.”
The slowdown in IPO activity on the mainland market has also prompted many companies originally intending to list on the Shanghai, Shenzhen or Beijing stock exchanges to switch to Hong Kong.
Beijing 51World Digital Twin Technology, a specialty technology company, became the fifth company to file under Chapter 18C with the HKEX after unsuccessful attempts to list on the high-tech Star Market in Shanghai and the Beijing Stock Exchange for innovative small and medium-sized companies.
Stricter oversight of applicants for mainland listings has reduced the number of companies in the queue from over 1,000 to about 300, according to Louis Lau, a partner of the capital markets advisory group at KPMG China. Many of these firms may switch to Hong Kong and become a significant source of IPOs for the city in future, he said.
Companies currently in Hong Kong’s IPO pipeline include Jingdong Industrials, a supply-chain technology and service provider spun off from e-commerce giant JD.com, and transport and logistics firm Lalatech Holdings.
Global expansion plans
The central government’s encouragement of mainland companies to list in Hong Kong has opened up a new financing platform for their global expansion, according to Kelvin Leung, managing director at Huatai Financial Holdings (Hong Kong).
Midea, for example, plans to use 20 per cent of the proceeds of its IPO for global technology research and development and 35 per cent for boosting its global distribution channels and sales networks over the next five years.
SF Holding’s chairman, Wang Wei, has said his company’s Hong Kong listing will be a platform to expand into international markets, while Mao Geping said 15 per cent of the funds it raised will be used for overseas expansion and acquisitions.
Hong Kong is making even more changes to help mainland companies list on its bourse.
In October, the Hong Kong Securities and Futures Commission and the exchange jointly announced plans to streamline the local listing approval process, including setting up a fast-track path for companies which are already trading on the mainland stock market that could cut the number of rounds of regulatory feedback to one and shorten the IPO evaluation process to just 30 working days.
Edward Au, managing partner of the Deloitte China Southern Region, said that the collaboration between the two regulators to improve the approval process should help avoid repetitive inquiries to issuers and improve the overall pace of listings. CAIXIN GLOBAL
