World’s Hottest IPO Market Hit by Slowdown in Listings

Hong Kong, the hottest initial public offering (IPO) market in the world in 2011, has seen a precipitous slowdown in listings because of market uncertainty and low valuations.

Hong Kong Stock Exchange
Mike Clarke | AFP | Getty Images
Hong Kong Stock Exchange

Companies have raised just HK$24 billion ($3.1 billion) via IPOs in the first four months of the year in Hong Kong, compared to HK$260 billion ($33.5 billion) last year, according to figures from the Hong Kong Stock Exchange.

Prada, Citic Securities, Chow Tai Fook Jewelry Group and New China Life Insurance were among the names that successfully raised money in Hong Kong last year. Chow Tai Fook raised $2.8 billion in the biggest listing of the year.

By contrast, the biggest IPO in Hong Kong this year was that of Haitong Securities , which raised $1.6 billion and made its debut on April 27.

“I think by any way you measure it, it’s been a rough first quarter,” Stephen Peepels, Partner at law firm DLA Piper, told CNBC. “So far we have had 5 deals in the entire year in Hong Kong that have raised more than a hundred million dollars, it’s a really historically low number.”

Last year, companies raised HK$17.77 billion in the first quarter, HK$153.43 billion in the second, HK$23.17 billion in the third and HK$65.63 billion in the fourth.

Concern over the direction of the market is what’s keeping investors away, said Ivan Li, Deputy Head of Hong Kong Research at Kim Eng Securities, where he covers the shares of Hong Kong Exchanges and Clearing .

“There is a lot of uncertainty in the market,” he told CNBC. “On the IPO side, stocks’ valuations are quite low so companies want to wait a bit for better valuations. On the demand side, investors are not quite ready to jump back into IPOs because of recent corporate scandals.”

In March, Deloitte resigned as auditor of Daqing Dairyand childrenswear manufacturer Boshiwa International, and both companies are now being investigated for possible financial irregularities.

Several other companies, including Ausnutria Dairyand Ports Design, have had their shares suspended after they missed the deadline for filing their annual reports.

While sentiment for IPOs is still weak now, Li expects listing activity to pick up in the second half of the year, especially as the Chinese economy stabilizes.

“I expect the Chinese economy to stabilize in third and fourth quarter,” Li said. “It will be hard to see last year’s number this year but there will certainly be an improvement from what we are seeing now.”