China to lead world IPOs league
By Robin Kwong and Sundeep Tucker in Hong Kong and Anuj Gangahar in New York
Capital raised by new listings in China is set to exceed $52bn this year, twice the figure forecast in January, putting the mainland on track to become the world’s leading centre for share offerings this year.
The potential sums raised in primary and secondary listings this year underscore the huge liquidity in China’s domestic stock market and will heighten fears in Hong Kong, London and New York that they will no longer continue to benefit from hosting mainland IPOs.
The forecast was issued on Wednesday by PwC, the professional services firm.
Richard Sun, PwC partner, said the firm expected capital raised by A-share listings in Shanghai and Shenzhen to total Rmb400bn ($52.6bn) in 2007, up from a forecast Rmb200bn in January. A-shares are traded in renminbi and are open only to locals and selected foreign institutions.
The flood of offerings is being driven by mainland companies’ rush to benefit from valuations on the soaring stock market. The main Shanghai index has trebled in the past 18 months.
“This latest forecast is scary,” said a senior Hong Kong banker. “Authorities in Hong Kong are going to have to work very hard to maintain the dominance and relevance of its bourse.”
IPO issuance last year in Hong Kong ($41bn), London ($39bn) and New York ($29bn) easily outstripped that of China’s mainland bourses, which were closed to new listings until June while market reforms were carried out.
US exchanges have been particularly concerned that they are missing out on the flood of Chinese IPOs and have blamed US regulatory burdens for discouraging overseas companies.
But efforts to reduce the red tape appear to be having some results. In the year to June 5, there were 11 listings of China and Hong Kong-listed companies in the US, compared with just two in the same period last year, according to Dealogic. But the sums raised were relatively small, the biggest being LDK Solar, which raised $469m.
PwC said that A-share listings in China in the first six months of the year hit Rmb169bn, with an even stronger IPO pipeline forecast for the rest of the year.
The soaring mainland IPO market is especially worrying for Hong Kong, the natural home for mainland companies to list over the past decade. Hong Kong IPOs this year have so far raised HK$102.6bn ($13.2bn).
Mainland China’s stock markets are largely out of bounds to foreign investors, whose holdings represent less than 1 per cent of the market capitalisation of all the stocks.
The robust market for Chinese offerings will also frustrate foreign investment banks, which are largely shut out of underwriting and trading mainland stocks.
Only Goldman Sachs and UBS have struck deals enabling them to participate in domestic IPOs, with Washington lobbying Beijing to lift restrictions on investment in local securities firms.
