AS IA CORN ER
// By Leslie Richardson
Hong Kong IPO Market Hits Dry Spell Starting in early January with the fifth Covid-19 wave, the Hong Kong financial market has been hit with a steady stream of punches this year.
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hree months of strict social distancing restrictions led to a sizable cut back on much of the local business activity causing the overall economy to shrink by four percent in the first quarter. Compounding the pressures of the local economic struggles are heightening geopolitical tensions and increasing interest rates resulting in the Hang Seng Index down around 9% YTD as of June 20th.
Adding to the challenges of Asia’s most popular fundraising venue, just 22 companies listed in the first half of the year, with only one IPO competed in May. Total proceeds raised were HK$17.1 billion, representing a 92 percent plunge in proceeds raised from the first half 2021. JL Mag Rare Earth, a producer of permanent-magnet materials, has been biggest Hong Kong IPO so far in 2022, raising over US$500 million in January. The IPO drought is due to a combination of China’s sharp economic slowdown, new regulatory framework for overseas listings and companies choosing to postponed their listing due to the weaker secondary markets. Insurance group FWD delayed its US$1bn Hong Kong initial public offering stating volatile market conditions as the cause. Highlighting the IPO market uncertainties is the impact of Beijing’s ongoing technology crackdown. Following last year’s tech crackdown and the blow to the Didi Chuxing IPO, China is putting more scrutiny on Chinese companies offshore listing plans as it revises its overseas listing rules. In December 2021, the China Securities Regulatory Commission (CSRC) released new rules for overseas IPOs includ-
78 MicroCap Review Magazine
ing Hong Kong, requiring all Chinese companies pursuing overseas IPOs to file with the CSRC. As part of the new draft regulation, companies can still list overseas as variable interest entities if they meet compliance rules, a sign that China is trying to avoid financial decoupling from the US. JD Technology, the fintech, cloud and AI arm of Chinese e-commerce company JD.Com, is one of the first high profile IPOs to be impacted by the new regulations. The company hoped to lodge its IPO filing in Hong Kong by the end of March followed by an IPO later this year. However due to the updated domestic regulatory approval requirement, it has been forced to delay its plans to raise up to US$2 billion as it waits to secure regulatory approval from the CSRC. Full Truck Alliance Co Ltd, China’s ‘Uber for trucks’, plans to raise US$1 billion in a secondary Hong Kong listing this year have also been paused as the company waits for the Chinese cybersecurity regulator to announce findings of a probe into the company. The company raised US$1.68 billion in a US IPO last year. Additionally, companies like Ximalaya and Green Tea Group are taking a wait and see approach to their IPOs. Ximalaya, China’s largest online podcasting platform, scrapped its US IPO plans after China implemented new regulatory rules targeting technology firms. The company filed its IPO application in Hong Kong last September but has re-evaluated its IPO plans while Chinese fusion cuisine restaurant, Green Tea Group, pushed back its plans to raise US$150 million in March amid the increasing poor market conditions.
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