HONG KONG New listings made a strong comeback in a year where the global equity bull run showed no signs of abating. Asia continued to lead in both volume and total funds raised as the region's two major economies shifted their reliance on banks to capital markets for their financing needs.
Asian companies altogether raised $79.14 billion through initial public offerings as of Dec. 18, up 10% from a year earlier, according to data from Dealogic. The sum represents 42% of the global tally, which surged 41% on the year to $194.8 billion.
Mainland China is the top source of new supply, followed by Hong Kong and India. With two exchanges in Shenzhen and Shanghai, the world's second largest economy saw a total of 409 companies tapping $31.61 billion from the market, up 30% compared with 2016. Shanghai was the top IPO destination in Asia for the year, with 56% of the country's total funds raised there.
The pickup was in large part due to the acceleration in listing approvals. "The volume of new issue was at a historic high," said Edward Au, co-leader of the national public offering group of Deloitte China, on Dec. 19, noting that the number of companies lining up for approval to list on the domestic A-share market fell to 446 from 681 a year ago. "It would probably take 15 to 18 months for the remaining batch of companies to go public."
Louis Lau, partner at KPMG China, said Beijing's drive to defuse financial risk will continue to support the mainland IPO market. "Deleveraging and supply-side reforms will cause [bank] lending to decline," Lau said. "That will steer companies with [financing] needs to the capital market."
But the substantial increase in new supply, along with tighter liquidity, also means that the average deal size of the two mainland exchanges has become smaller. The largest A-share IPO in 2017 was Hangzhou-based Caitong Securities' $620 million transaction, compared with the $3.9 billion jumbo by U.S. technology company Snap in March -- also the world's biggest for the year. Manufacturing and financial services companies raised most funds on the A-share market in 2017.
CHINA'S TIME China eclipsed its major offshore center, Hong Kong, in financing activities. Hong Kong saw total funds raised fall 34% to $14.08 billion in 2017, despite a 24% jump in volume. Lacking blockbuster deals like the Postal Savings Bank of China in 2016, Hong Kong slipped from being the world's top listing destination for the previous two years to second in Asia, and fourth globally in 2017.
Although the city continued to see its IPO market dominated by mainland financial services companies, it managed to attract more deals from new-economy sectors, especially when the Hang Seng Index surged nearly 40% and hit multi-year highs in the year.
China Literature, a Tencent Holdings' spinoff, and its affiliate Yixin Group, China's largest online car retailer, were leading deals in Hong Kong in 2017. Both were hugely oversubscribed and saw their prices jump upon listing. Another Tencent-backed mobile game publisher, Netmarble Games Corp., raised $2.34 billion in March to become South Korea's largest issue in seven years, and Asia's most prominent deal in 2017.
The IPO frenzy in Hong Kong was sparked by the $1.75 billion offering of ZhongAn Online P & C Insurance, China's first pure-play online insurer set up by Alibaba Group Holding, Tencent, and Ping An Insurance Group -- which is also the second largest deal in Asia, excluding Shanghai-based Guotai Junan Securities' secondary listing in Hong Kong. More deals in the city priced above the middle of their indicative ranges in 2017 -- around 59% of the new issues achieved that, versus 46% a year earlier.
Such investor sentiment and buoyant valuation enabled the city to attract more companies from abroad, which made up 19% of new issues, versus 8% a year ago. That includes gaming equipment maker Razer based in Singapore and San Francisco, Japanese Nissin Foods' instant noodle unit, Malaysia's construction company BGMC International, and Singapore's engineering company Solis Holdings.
In light of market reforms, Au said Hong Kong could raise up to $24.3 billion in 2018, equal to the A-share market. The Hong Kong Exchanges & Clearing said Dec. 15 it was considering adding two new chapters to the main board to accommodate promising companies with weighted-voting rights and biotech companies that have yet to turn a profit. It also proposed to create a new concessionary secondary listing route for new-economy issuers already listed in New York, London, or the Nasdaq.
"Many of the mainland companies which originally would choose to go public in the U.S. will now consider Hong Kong as an alternative listing venue in 2018," said Wang Hang, Baker McKenzie's Beijing-based partner. Beijing-based Meituan-Dianping, an online food and events platform, is reportedly planning a $3 billion IPO in the U.S. as soon as 2018.
Others in the pipeline include Alipay's operator Ant Financial, ride-hailing company Didi Chuxing, electronics producer Xiaomi, and Ping An's flagship online asset management platform Lufax Holdings.
Au also said the underperformance of many new Chinese listings in the U.S. might add to Hong Kong's appeal. Alibaba-backed online lender Qudian, for instance, saw its New York-listed shares tumble 55% since its debut in October. Its peer LexinFintech Holdings, backed by JD.com, slashed its fundraising target by 76% to $120 million on Dec. 14. Beijing's plan to allow mainland companies to freely convert non-listed domestic shares into H-shares traded on the Hong Kong bourse will also help the city attract more listings, Au said.
By contrast, Hong Kong's gain has been Singapore's pain. The city-state has been suffering from a spate of delistings since 2016. About 22 companies have left the Singapore Exchange in 2017, outpacing the number of IPO deals it hosted. That includes home-grown logistics company CWT, privatized by acquisitive Chinese conglomerate HNA Group. Massage chair maker OSIM International, which left the bourse in 2016, opted to relist in Hong Kong as V3 Group.
Although the $1.71 billion issue of Netlink NBN Trust helped push Singapore's IPO tally to $3.21 billion, or 91% higher than a year ago, the city-state has missed several closely watched listings such as that of Sea, a Tencent-backed gaming company that went public in New York in October. HNA Commercial REIT, which originally planned to raise $561 million in July, held off its IPO as the company drew more scrutiny from banks and regulators.
INDIA RIDING HIGH India's IPO market recorded its best performance in at least a decade, raking in $11.72 billion or nearly tripling the amount it raised in 2016. Financial services companies accounted for above 75% of the total funds raised as well as 12 of the 34 listings in the period. Many of them are insurers, with state-run General Insurance Corporation of India, launching the biggest offering in seven years, at $1.73 billion, followed by New India Assurance, which used to be part of General Insurance before it became a reinsurer.
Karan Marwah, partner at KPMG India, said the country's vibrant IPO scene was partly driven by pent-up demand for capital. "While the last few years had not seen a lot of primary market activity resulting in a pipeline of companies looking to go to market and raise capital, a number of private equity investments are also at the end of their investment cycles with the investors looking for exits," Marwah said.
He also said the government's latest $32 billion capital injection plan to help banks resolve bad debt would prompt fresh equity raising, while the Indian government's need to meet its divestment target also means more state-run companies will float their shares. The telecom unit of conglomerate Reliance Industries is reportedly planning to hit the market by the beginning of 2019.
"We expect momentum to continue in Asia given a full pipeline," said Tiffany Ng, manager of IPO exchange-traded products at Renaissance Capital. Ng noted that the strong pipeline was partly filled by companies that have delayed their IPOs on the back of ample private liquidity.
Nikkei staff writers Rosemary Marandi in Mumbai and Mayuko Tani in Singapore contributed to this report.