Over 100 companies will seek to float their shares in Hong Kong in 2015 and raise HK$200 billion ($25.8 billion) in the process, global consultancy firm PwC predicted on Monday.
This is just under the amount raised in 2014, which came to HK$227.8 billion, but is still higher than 2013's total of HK$171.3 billion.
PwC forecast that 120 new companies will float shares in Hong Kong this year compared with 122 companies in 2015. It expects small- and medium-sized companies to make up the bulk of new business, with retail, consumer goods and financial services dominating for a second year in a row.
The retail, consumer goods and services sectors accounted for 46% of all initial public offerings in Hong Kong in 2014, followed by financial services, which grabbed a 16% share.
"The positive momentum that started in the second half of 2013 carried through to 2014," said Benson Wong, assurance partner at PwC. "Although the IPO market slowed down slightly in the second quarter because of geopolitical and other concerns, it bounced back in the second half."
Whether this momentum carries through into 2015 remains to be seen. Some investment bankers in Hong Kong anticipate the first quarter could be challenging.
"There is much uncertainty surrounding Greece and the EU, with Germany now said to be supportive of a euro exit by [Greece], and [with] the Fed's interest rate policy in the wake of strong US employment numbers," Philippe Espinasse, former ECM banker and author of “IPO Banks” and “IPO: A Global Guide”, told FinanceAsia. "The view seems to be that things in the first quarter in particular could be challenging."
In addition, with Chinese New Year coming at the end of February, it's possible companies may wait for their year-end numbers before coming to market.
"The first quarter could also be quieter because of that," Espinasse said. "We will probably see a rush of new issues in July and towards the end of the year." Companies that do come to market in 2015 could also experience a diverse aftermarket performance, as in 2014, he added, citing the contrasting fortunes of CGN Power and Dalian Wanda Commercial Properties.
Shares in CGN Power shot up 19% on their market debut following the company's $3.16 billion flotation, while Dalian Wanda initially dropped 3% after its $3.72 billion IPO.
The contrasting initial trading outcomes of CGN Power and Dalian Wanda could be a sign of things to come. [As a result], the performance of IPOs will probably remain binary with some deals doing very well, while others will have to be trimmed down to realistic offer sizes and valuations in order for these to get away," Espinasse said.
In addition to the global economic uncertainties, the majority of deals currently in the pipeline in Hong Kong are in sectors that are not so appealing to investors.
"There is much in the considerable pipeline that is not so attractive to investors. A number of banks and brokers from the mainland have significant needs for capital still, as have many property developers," Espinasse said.
China Huarong Asset Management, CICC Investment Bank and Bank of Beijing are all expected to come to market in 2015. Indeed, many remain wary of investing in mainland financials due to a combination of high debt levels, a potential slowdown in the Chinese economy and an increasing number of non-performing loans.
China Cinda Asset Management became the country's first distressed debt manager to seek a public listing. The December 2013 IPO itself was successful, with investors shrugging off warnings and piling into the company, allowing it to raise HK$19 billion.
But aftermarket performance has been poor. Shares in Cinda lost 24% in 2014 and were down 16% from their IPO price as of January 5.
And despite the government’s efforts to stimulate China’s property market, it continues to struggle. Slowing sales, construction dropping off and banks becoming more cautious about lending all contributed to a poor year for the mainland’s real estate sector.
Beijing also introduced restrictions on second and third home purchases, higher down payments on mortgages and tightened credit for property developers.
Many expect China's property market will continue to struggle, although the People's Bank of China's recent interest rate cut may help cash-strapped property companies. On November 21, the PBoC cut the benchmark one-year lending rate by 40 basis points to 5.6% and the one-year deposit rate by a quarter percentage point to 2.75%. Technology reprieve
If there's one sector that stood out in 2014 globally, it was technology. Jack Ma's Alibaba shattered all records and raised $25 billion in its September IPO in New York. And many expect a tidal wave of Chinese internet companies will follow in the e-commerce giant's footsteps and tap capital markets this year, although -- like Alibaba -- most of these will seek listings in the US rather than Hong Kong.
"It makes more sense for IT companies to list in the US where the specialist investor base and research analyst pools are much larger than in Hong Kong," Espinasse said. But not all Chinese technology companies will go to the US.
Xiaomi, the world’s third-largest smartphone supplier after Apple and Samsung, is said to be considering an IPO in Hong Kong, as local investors tend to be more comfortable with hardware firms rather than software companies.
No definite timeline has been set, according to bankers familiar with the matter.
PwC's research also forecasts 200 companies will float shares in Shanghai and Shenzhen this year and raise Rmb130 billion ($20.9 billion). This is a sharp increase from 2014, when 125 companies raised Rmb78.6 billion.
The Hong Kong-Shanghai Stock Connect will encourage more Chinese companies, both state and private-owned, to list in Hong Kong. In addition to raising capital, it will help the companies boost their international profiles, PwC's research noted.
Still, Espinasse argues that it's difficult to predict domestic markets in China, given the "authorities still control the tap."
