Energy in the Hong Kong fundraising market that followsinitial public offeringsInitial Public Offerings (IPOs) are expected to remain active, according to senior investment bankers, fueled by the strong capital requirements of companies on the mainland and international investors shifting their focus toward Chinese investments.
The sum collected through follow-on offerings—such as share placements and equity-related debt issues like convertible bonds following initial public offerings—amounted to US$31.4 billion in the first half of this year, as per data from Dealogic. The annual total for 2024 was US$27.9 billion, with the highest ever recorded being US$83.9 billion in 2021.
An increasing number of publicly traded companies, aiming to grow their operations and finance research and development (R&D), have contributed to an optimistic view of capital markets, according to bankers.
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"The present surge in A-to-H IPOs presents a significant chance for most publicly traded companies to explore additional share offerings in order to boost their liquidity," said Jacky Leung, head of Hong Kong coverage atGoldman SachsThe A-to-H trend involves a number of mainland-listed companies selling H-shares in Hong Kong, including an electric vehicle (EV) battery manufacturer.Contemporary Amperex Technology, which concluded the biggest initial public offering of the year.
"As a bridge for Chinese technology, media, and telecommunications (TMT) and industrial firms to reach global capital, especially within a challenging geopolitical environment," was a major reason why companies aimed for additional share offerings, noted Leung, who also holds the position of co-chief operating officer for Goldman's TMT group in Asia, excluding Japan.
"The momentum in fundraising is anticipated to persist, fueled by substantial technology investments," stated Saurabh Dinakar, head of Asia-Pacific global capital markets at Morgan Stanley. The "positive" outlook is expected to stay for the next 12 months, even with possible market fluctuations that might affect investor confidence and delay the flow of deals, he noted.
"The breadth of the Hong Kong market proves effective during times of fluctuation," stated Johnson Chui, managing director and head of global issuer services at Hong Kong Exchanges and Clearing, at aconference last week, referencing the overall financial power of initial public offerings and subsequent equity issues.
"The enhanced market performance and increased trading volumes have resulted in a rise in follow-on offerings," stated Goldman's Leung. "Significant capital raising can only occur if the stock has adequate trading liquidity." Goldman ranked first on the Dealogic Asia-Pacific excluding Japan equity capital market league table based on bookrunning volume in the first half of the year and spearheaded Hong Kong's three largest follow-on deals during that time.
Companies that recently conducted significant share offerings included the world's biggest electric vehicle manufacturer.BYD and Xiaomi, which generated US$5.6 billion and US$5.5 billion respectively, in March to fund their international growth and research and development activities.
In June, Horizon Robotics, a mainland Chinese developer specializing in intelligent driving chips, secured approximately US$600 million. That same month, Innovent Biologics and a major Chinese logistics companySF Holdinginitiated stock offerings that generated approximately US$550 million and US$376 million, respectively.
"Currently, there are several large and high-quality Chinese companies listed in Hong Kong, including some that are dual-listed in the US and Hong Kong, which are increasingly securing funding in Hong Kong because of growing stock prices and valuations," mentioned Dinakar from Morgan Stanley. The bank oversaw several significant subsequent equity offerings, such as those for Horizon, Innovent, and Nio.
The city's key Hang Seng Index has risen over 22 percent this year, while the S&P 500 has increased by 6.5 percent.
Although share placements could potentially reduce stock prices because of discounts and increased supply, liquidity usually improved if there was continued investor interest, according to analysts. For instance, BYD's shares dropped 6.8 per cent on March 4 after the company announced a share placement, but they later rose by 9.2 per cent.
All major follow-on offerings this year, including BYD, Xiaomi, SF... have performed strongly, which is expected to boost investor interest," Leung stated. "We have observed a global capital reallocation driven by 'trade realignment' and ongoing international capital inflows.
"Global investors show widespread interest in investing in some of these top-tier companies within their industries," Dinakar stated, noting that foreign capital from pension funds, sovereign wealth funds, and hedge funds has come back to the Hong Kong market following three years of low engagement.
Furthermore, inward flows from mainland Chinese investors have strengthened Hong Kong's stock market.
"As liquidity rises, market depth expands, which further draws in attention and funding," Dinakar stated.
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This piece was first published in the South China Morning Post (www.scmp.com), a top news outlet covering China and Asia.
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