Uncertainty hangs over China’s ecomony, as firms rush for overseas IPO

BY EFES YU 

 

The rush for offshore Initial Public Offerings (IPO) signals a wide spread feeling of uncertainty over the prospect of China’s economy as the trade war escalates, despite Hong Kong reclaimed the crown as the No.1 market for listing worldwide.

On Wednesday, Bitmain Technologies, the world’s biggest virtual currency mining firm founded by mainland entrepreneurs, filed their IPO application to Hong Kong’s regulator.

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It marked another major push by a Chinese firm to seek offshore listing, after several biggest unicorns, including smartphone maker Xiaomi and on-demand service giant Meituan, went public in Hong Kong earlier this year.

This year’s offshore IPO frenzy by Chinese companies highlights their eagerness to cash out by early investors.

Overseas IPO is also a shortcut for Chinese entrepreneurs to move their assets abroad, at a time when Beijing tightens capital outflow.

Over the past few years, investors have put a lot of money into China’s start-ups, covering business from food delivery to car hailing.

But as the trade war between Beijing and Washington escalates, the safe choice now seems to go public as rapid as possible.

As long as new investors come in, early investors could cash out, securing their returns before things turn bad.

Hong Kong beat New York for the first time in 18 months to reclaim the crown as the No. 1 market worldwide for IPOs in the first nine months of this year, as the listing reform led to a slew of companies raising funds in the city, according to data from Thomson Reuters.

This also marked the first time Hong Kong has risen to the top of global IPO rankings since it fell to fourth place in the first quarter of 2017 behind New York, Shanghai and Shenzhen, the quarterly data showed.

Eighty-four companies raised $28.6 billion through IPOs on Hong Kong Exchanges and Clearing’s main board in the first nine months of the year until Wednesday, up 220 percent from the $8.93 billion raised a year earlier.

New York, the top IPO market worldwide since the first quarter of 2017, dropped to second place as 48 companies raised $25.1 billion during the first nine months. Nasdaq ranked third at $18 billion while Shanghai took fourth place at $10.44 billion.

The driving force behind the HKEX’s IPO boom was also the listing reform in April, which attracted three big technology blockbusters from July to September, according to the South China Morning Post.

About 42 percent of IPO funds raised so far were by telecommunications firms, hi-tech firms accounted for 5 percent, retail 19 percent, financial 13 percent, real estate 7 percent and others accounted for the rest.

A year earlier 61 percent of the funds were raised by financial firms.

The largest global IPO so far this year was telecom tower operator China Tower’s $6.9 billion fundraising in August, the biggest since Postal Savings Bank of China’s $7.6 billion Hong Kong listing in 2016.

The local bourse, which implemented its biggest listing reform in 25 years in April, allowing companies with dual shareholding structures, new economy as well as the biotech firms without profit or revenue to list here, attracted two mega dual-class shareholding structure companies.

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Smartphone maker Xiaomi launched its $5.4 billion Hong Kong IPO in July and China’s food delivery service platform Meituan Dianping raised $4.2 billion this month.

Together with main board and GEM, funds raised by 144 IPOs in Hong Kong stood at $29.1 billion in the first nine months, up 208 percent from a year earlier. It was also the highest amount raised in a decade, Thomson Reuters data showed.

Gordon Tsui Luen-on, managing director of Hantec Pacific, said IPOs in Hong Kong will continue to grow but warned of difficulties ahead.

“Many companies have been rushing through with their IPOs in recent months. The real reason behind the strong IPO market may be that the listing hopefuls have a bearish outlook.”

He added that many IPOs in recent months could only fix their offer price at the low end and some have seen their shares drop below the offer price on debut.

The writer is a veteran financial journalist based in China

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