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back to index backCHINAtalk January,  2017

Greater China leads world’s IPO market in 2016 despite global uncertainty

Entrepreneurial and investor confidence was challenged throughout 2016 by heightened political and economic uncertainty globally, according to the quarterly EY Global IPO Trends: 2016 Q4. The number of initial public offerings (IPOs) worldwide in 2016 fell 16% year-over-year (YOY) to 1,055 and capital raised was down by 33% to US$132.5b. The volume of mega-deals (IPOs with proceeds over US$1b) also fell from 35 in 2015 to 21.

Terence Ho, EY Greater China IPO Leader, says:

2016 was characterized by a number of unexpected geopolitical shocks. Although market sentiment held up this year against multiple setbacks, markets will likely remain under pressure in 2017 with lingering uncertainty surrounding the future make-up of the European Union, the new US presidential administration and concerns about slowdown in China’s growth rate.”

Despite many unexpected outcomes in 2016, the reactions to geopolitical events in the financial markets have remained benign. Equity markets have risen to new highs, volatility has fallen and trailing private equity ratios are on a rising trajectory.”

Greater China goes from strength to strength

Vivien Zhang, EY Assurance Partner, says:

After a period of uncertainty in the latter part of 2015, confidence and stability have returned to the Greater China IPO market, with the number of deals steadily increasing quarter-by-quarter throughout the year. In terms of stock exchange in Greater China, due to a slow-moving first six months, there were 360 IPOs in 2016 (2015:360) raising US$48.3b in capital, down 17% on 2015.”

In 2016, Hong Kong – HKEx’s main board and Growth Enterprise Market (GEM) – was the world’s leading exchange by capital raised with 19% of the global total, ahead of Shanghai (SSE) with 12%.

By volume, Shenzhen (SME board and Chinext) ranked first with 121 IPOs (11.5% of the global total), slightly ahead of Hong Kong (main board and GEM), which ranked second with 117 IPOs (11.1%), ahead of Shanghai (SSE) in third place with 104 (9.9%).

Greater China exchanges hosted four of the ten largest IPOs globally by proceeds in 2016, including the largest deal of the year of Postal Savings Bank of China Co. Ltd., which raised US$7.6b on HKEx in September

Mainland China IPO activity accelerates

After a steady start to the year on mainland China exchanges, in which the China Securities Regulatory Commission (CSRC) sought to quell market volatility by keeping a close hold on the pace of new listings, IPO activity has steadily quickened in the second half of 2016. The stabilization of the Chinese economy and stock markets in the second half of 2016 has both helped the performance of newly listed companies.

Vivien Zhang continues:

For the year as a whole, there was a total of 225 IPOs on Mainland exchanges, raising US$22.7b in proceeds. Compared with 2015, this represented an increase of 3% in volume and a decrease of 4% in the amount of funds raised. However, the fourth quarter can be seen as a turning point as the CSRC has moved to accelerate the pace of IPOs. There were 99 new listings in 4Q16, up from 65 IPOs in the prior quarter, while proceeds rose to US$11.0b from US$7.3b in 3Q16.

As a result, the number of companies on the CSRC’s waiting list for A-share IPOs has dropped to 731, from more than 850 earlier in the year. Meanwhile, investor appetite for A-share IPOs remains overwhelming. In 4Q16, first-day returns for every company that went public reached 44%, the maximum permitted by the CSRC.”

Hong Kong maintains a stable course

Hong Kong’s Main Board and GEM saw a steady end to the year with 49 IPOs, raising a total of US$7.8b in 4Q16. This was an increase of 63% by volume and a fall of 35% by proceeds from 3Q16. Compared with 4Q15, deal numbers were down 4% in the fourth quarter and proceeds dropped by 44%. For the full year, there were 117 IPOs – down from 121 in 2015 (a 3% decline) – and US$25.3b in capital raised, a 25% decline (US$33.9b).

Terence Ho comments:

Market sentiment remains strong with the proportion of oversubscribed IPOs in 4Q16 on the Main Board at 76%, up from 65% in the third quarter. However, investors are becoming more discerning with regard to valuations – the proportion of IPOs pricing in the upper range dropped to 31% from 43% in 3Q16.

This year, the Hong Kong Main Market and GEM as a whole has also seen a trend toward small deals. The average deal size in 4Q16 dropped to US$158m from US$397m in 3Q16 and US$270m in 4Q15. This trend is underlined by continued robust activity on the GEM board - funds raised increased 235% and 179% compared with 3Q16 and 4Q15, respectively.”

Financials and healthcare were the two most active sectors by capital raised in the fourth quarter, raising US$2.6b and US$2.2b, respectively, accounting for 33% and 28% of the quarter’s total.

Terence Ho says:

The latter was due principally to the US$1.9b listing of China Resources Pharmaceutical Group on the HKEx in October, which was the second largest deal in Hong Kong this year. Construction & infrastructure and consumer products & services were the two most active sectors by volume in 4Q16, accounting for 22% and 18%, respectively, of this quarter’s IPOs on the Hong Kong Main Board and GEM.”

Greater China will continue to lead the way in 2017

The capital markets in Greater China returned to stability this year with its stock exchanges topping the global exchanges leader board in terms of both IPO volume and capital raised.

Terence Ho concludes:

The CSRC has started to accelerate the IPO approval process and we expect this trend to continue in the coming months. Moreover, the launch of the Shenzhen-Hong Kong Connect program would gradually draw greater participation by overseas institutional investors in the A-share market and further boost market sentiment in the long run.

With a strong pipeline of companies ready to list and investor sentiment unaffected by political shockwaves elsewhere in the world, we expect Greater China exchanges to remain the world’s most active markets for IPOs in 2017.”

Source: EY - GAI

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