New Hong Kong listings are tracking at their slowest pace since the aftermath of the global financial crisis, as weaker markets and China’s clampdown on its biggest tech firms have chilled sentiment.
Just seven companies have so far gone public in the second quarter, on track for the fewest initial public offerings (IPOs) since 2009, Bloomberg data showed.
The muted second-quarter activity stands in sharp contrast with the rush to go public seen last year or even at the start of this year.
First-day performances have also struggled: IPOs last month — including warehouse and distribution company JD Logistics Inc (捷德國際物流) and property manager Central China Management Co (中原建業) — delivered the worst average debut performance in 15 months, the data showed.
The cool-off comes as China slapped a record fine on Alibaba Group Holding Ltd (阿里巴巴集團) and ordered 34 of its largest tech companies to rectify any anti-competitive business practices.
That is making some firms more skittish about going public and investors worry about further actions from regulators.
China has said that the moves are to protect consumers and maintain financial stability.
“Investors are no longer comfortable paying sky-high valuations for some companies,” said Louis Tse (謝明光), Hong Kong-based managing director at Wealthy Securities Ltd (永裕證?). “Because of the intervention of the government, some issuers will have to revise down their multiples.”
China’s top-three tech firms — Tencent Holdings Ltd (騰訊), Alibaba and Meituan (美團) — have lost more than US$400 billion in value from highs just four months ago.
The Hong Kong Stock Exchange earlier this year tumbled into a technical correction, dragging valuations further.
Since a February high, the benchmark Hang Seng Index is one of the world’s worst performers.
As a result, the capital raised on the Hong Kong exchange this year is only half of last year’s levels, impacting the city’s position as a top fundraising hub.
In comparison, volume on the NASDAQ Composite has surpassed its total from last year, thanks to a boom in blank-check company listings earlier this year.
To be sure, Hong Kong’s year-to-date IPO volume is still more than triple the same period last year, with nearly US$23.9 billion raised.
Meanwhile, the US special purpose acquisition company (SPAC) boom is fizzling out.
Worries about rising inflation are also making tech firms going public a harder sell as investors dump shares with rich valuations.
Beijing’s scrutiny of firms, including technology and education, has forced investors to scale back earnings forecasts, investors say.
“We have seen some volatility and that has reflected on investors’ appetite, but deals that are priced appropriately will get done,” said Francesco Lavatelli, head of equity capital markets for the Asia Pacific region at JPMorgan Chase & Co.
Financial technology firm Bairong Inc (百融) slumped 16 percent when it began trading in late March, while healthcare company Zhaoke Ophthalmology Ltd (兆科眼科) dropped 15 percent in late April.
JD Logistics, which raised US$3.2 billion, closed only 3 percent above its offering price in its debut, in contrast with another JD.com (京東) unit, JD Health International Inc (京東健康), which surged 56 percent on its first day last year.
The test for whether Hong Kong’s IPO market can stage a revival is to come from some upcoming listings, which include share sales by China Youran Dairy Group Ltd (中國優然牧業集團) and Angelalign Technology Inc (時代天使), China’s leading invisible orthodontic producer.
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