Hong Kong on Track to Regain IPO Sizzle
Hong Kong is on its way to regain its position as one of the world's hottest initial public offering (IPO) markets this year after hitting a four-year slump in 2012, according to data from consultancy firm PricewaterhouseCoopers (PwC).
A revival in Hong Kong's IPO market in the first-half of the year in terms of fundraising size despite nine fewer listings compared to the same period last year shows "fundamentally" strong demand, PwC said.
"IPO activity in terms of fundraising size reached HK$39.5 billion ($5.09 billion) in the first half of 2013, an increase of 28 percent from the first half of 2012," PwC said in a note on Tuesday. "This clearly illustrates that despite a decrease in the number of IPOs, there is a strong appetite for new listings with the average size of fundraising stepping up significantly."
A strong pipeline of IPOs - PwC expects up to 80 IPOs with total fundraising between $15.5 billion and over $19 billion in 2013 - would catapult the city into the world's top three markets for capital raising.
Right now, the Hong Stock Exchange is in the third spot globally for funds raised from new listings in the first six months of the year at $5.09 billion after the U.S. (Nasdaq and New York Stock Exchanges) at $20.9 billion and Brazil at $6.5 billion, according to PwC. But, the London Stock Exchange is trailing close behind at $5.06 billion.
Hong Kong fell to the fourth spot in global IPO rankings in 2012 behind the U.S., London and mainland China after 64 new listings that raised $11.6 billion, down from 101 listings in 2011 raising a whopping $33.5 billion. The downturn last year marked the first time Hong Kong fell to the fourth spot globally in three years after dominating the IPO market from 2009.
(Read More: Is 2012 as Bad as It Gets For Hong Kong's IPOs?)
Despite tapering of quantitative easing (QE) by the U.S. Federal Reserve and credit tightening in mainland China affecting market sentiment in the near-term, PwC still expects Hong Kong to regain its former glory in the IPO market this year.
"It is inevitable that the QE withdrawal plan may damage market sentiment in the near-term [in Hong Kong]," Benson Wong, PwC Hong Kong Assurance Partner, said. "However, it is essential to normalize the financial markets and alleviate the bubble-risk, a move that will ultimately benefit the overall fundraising market and economy over the long-term."
In June, nearly $1.84 billion worth of listings were postponed in Hong Kong by companies like Hopewell HK Properties and auto parts maker Mando China Holdings due to volatile market conditions.
(Read More: Can a Pawn Shop Turn Hong Kong's IPO Market Around?)
However, the temporary closure of fundraising activities in mainland China, combined with loosening of listing rules for H-shares, which are shares of mainland Chinese firms listed in Hong Kong, have resulted in many Chinese companies considering Hong Kong to raise funds, PwC said.
"As companies in the A-share [shares traded in Shanghai and Shenzhen] IPO pipeline are still numerous, other markets, such as the H-share market, are a good alternative," Edmond Chan, PwC Hong Kong capital market services group partner, said.
Authorities in China halted IPO activity in October after accounting irregularities, leading to a queue of companies waiting to list. As of June, there were more than 600 companies waiting for regulatory approval on IPO applications in the mainland.
Mid-size listings will be the major source of fundraising in the Hong Kong market in 2013, according to PwC.
"In the first half of 2012, retail consumer goods and financial services IPOs accounted for 64 percent of new listings in terms of number, followed by industrial products, which accounted for 18 percent, energy and mining-related, accounting for 12 percent," PwC said.
- By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu