HONG KONG -- Hong Kong had its busiest day for initial public offerings in six months on Friday, reinforcing the city's role as a listings venue when regulators in both China and the U.S. are putting a chill on foreign IPOs by mainland companies.
Five companies begin trading on the city's stock exchange, after raising a combined $630 million, marking the biggest day for IPO listings since Jan. 8.
The newcomers include clinical testing company Kindstar Globalgene Technology, pearlescent pigment maker Global New Material International Holding, property managers Kangqiao Service Group and Ronshine Service Holding, and China General Education Group.
Global New Material ended its first day of trading 13.8% higher than its offering price, while Ronshine edged up 0.4%. China General Education ended unchanged. Kindstar slipped 7.6%, while Kangqiao fell 1%.
Thirteen companies have priced Hong Kong offerings so far this month, already the most since January, data from Dealogic shows.
Hong Kong has hosted new listings worth $32.5 billion so far this year, almost all from Chinese companies, compared with $19.2 billion in the first seven months of 2020, according to the data. The continued momentum and investor appetite come as China clamps down on overseas listings -- to dissuade companies from selling shares in the U.S. -- and bolsters the screening for listings in local bourses.
"We continue to see strong supply and resulting demand from investors for Hong Kong IPOs," said Jan Metzger, Citigroup's head of banking, capital markets and advisory for Asia Pacific. "There is a strong pipeline of transactions across sectors. Our clients are focusing on the fundamentals. Hong Kong remains an attractive IPO destination for many of our clients."
U.S. capital markets have an edge in the scale and diversity of their investor base and the number of peer companies. But Hong Kong serves as an attractive alternative given the clampdown by Beijing, reforms by the Hong Kong exchange and ample liquidity in the city, analysts and investors say.
Hong Kong will be crucial as hungry technology and biotech companies seek capital.
About 70 health care companies have raised over $50 billion on the city's exchange, making it the second-largest fundraising center for biotech businesses behind New York, said Nicolas Aguzin, CEO of Hong Kong Exchanges & Clearing, which operates the stock exchange.
The exchange has become a hub for new economy companies, he said, with such shares producing one-third of the capitalization of all stocks in the exchange, up from 4% three years earlier.
"You can see the dramatic growth of new economy companies in the exchange," Aguzin said. "Everyone knows companies want to be where their peers are." This factor already is "attracting" players from the region including Southeast Asia, he said.
The exchange was considering 179 listing applications as of June 30, with 41 applications made last month alone, according to its website. Beijing's crackdown on U.S. listings by Chinese companies could redirect much of the flow to Hong Kong.
NetEase's music streaming unit has filed an IPO application in Hong Kong. Chinese artificial intelligence startup SenseTime and Tencent Music Entertainment, which is already on the New York Stock Exchange, are preparing to list in the city, people familiar with the plans say.
Hong Kong Exchanges & Clearing's share price rose 3.6% on Friday, taking its gains to 13.5% since July 2, when China announced a regulatory crackdown on the heels of ride-hailing service Didi Global's listing in New York. The Hang Seng Index, meanwhile, has declined 2.8% over the same period.
China has conveyed to companies and bankers that it plans to exempt Hong Kong from its offshore IPO crackdown, according to a source familiar with the discussions. Bloomberg News first reported the exemption.
Beijing said Saturday that companies holding data on more than 1 million users must now apply for cybersecurity approval when seeking overseas listings -- a move that would encompass nearly all offshore IPO aspirants.
Chinese medical data group LinkDoc Technology called off its American IPO at the last minute in response to the regulatory changes. SoftBank Group-backed Chinese fitness app Keep followed, according to the Financial Times, as did e-commerce startup Meicai, the South China Morning Post reported, and Manycore Tech, according to The Information.
But Jianzhi Education Technology Group, which provides an online learning platform and educational content in China, filed its application Tuesday with the U.S. Securities and Exchange Commission.
The U.S. also has raised barriers to new listings during the past year. Chinese companies eventually will face delisting if they do not share their audit records with American regulators, a pending rule that will cover virtually all U.S.-listed Chinese businesses due to requirements by Beijing.
President Joe Biden also has intensified pressure on Beijing. Biden last month signed an executive order prohibiting U.S. residents and entities from investment in 59 Chinese companies, alleging ties to China's military. Chinese telecom companies including China Mobile have been delisted from American exchanges.
Washington's pressure has accelerated a push by companies to undertake a second listing in Hong Kong as a hedge against delisting. U.S.-listed Chinese companies including Alibaba Group Holding, JD.com and Baidu have raised more than $37 billion since late 2019 via new listings in Hong Kong, data compiled by Nikkei Asia shows.
"The Hong Kong IPO market for the second half of 2021 is looking promising," said Benson Wong, PwC's Hong Kong entrepreneur group leader. "The investment sentiment in the Hong Kong IPO market is expected to continue to improve. We expect the strong demand for IPO fundraising to continue."