Markets Apr 12

China tech startups favour Hong Kong over Mainland for IPOs 

Prospective listers put off after the halting of Alibaba affiliate Ant Group's $37-billion float last year as HKEX vigorously promotes itself to 'new economy' candidates

China tech startups favour Hong Kong over Mainland for IPOs 
An employee stands next to the logo of Ant Financial Services Group, Alibaba's financial affiliate, at its headquarters in Hangzhou, Zhejiang province. File photo by Reuters. 

(ATF) A growing number of Chinese tech start-ups, fearing tighter scrutiny, are cancelling plans for an initial public offering (IPO) at home and eyeing a Hong Kong share sale instead.

Prospective listers have been put off after the halting of Alibaba affiliate Ant Group's $37-billion float last year.

More than 100 companies have voluntarily withdrawn applications to list on Shanghai's STAR Market and Shenzhen's ChiNext since Ant's termination of its IPO in November 2020, exchange filings show.

The unprecedented withdrawals come against the backdrop of sharply intensified grilling of listing prospects by regulators, leading to IPO delays, outright rejection or even penalties, say bankers and company executives.

At the same time, the Hong Kong stock exchange (HKEX) has been vigorously promoting itself to Chinese start-ups.

"Investors will be watching for HKEX’s proposal to relax the requirements for secondary listing," Samuel Tse, DBS economist in Singapore, said.

"This will attract more Chinese corporates currently listed on US stock exchanges, especially 'new economy' companies, to seek secondary listing in Hong Kong," he added.

Tse forecast "buoyant IPO activities" in Hong Kong this year.

COMPETITION BOOST

HKEX's relaxed listing requirements would put the exchange in direct competition with the STAR Market, launched nearly two years ago with a US-style registration and disclosure-based IPO regime in a bid to dissuade its tech startups from tapping offshore bourses, and to fast-track listings. The reform extended to ChiNext last year.

The STAR Market became the world's fourth most popular listing venue in 2020, with IPOs raising $20 billion. Its ranking fell to the seventh in the first quarter, according to Refinitiv.

"There's a tech bubble in China," Yiming Feng, partner at Atom Venture Capital, said. "It's time for a clean-up."

The IPO pipeline is one of the few positive aspects in Hong Kong battered by Beijing's political crackdown, continuing popular resentment against the authorities, and a sluggish economy weighed down by coronavirus outbreaks.

NEW ECONOMY DRIVERS

After a strong year in 2020, local IPOs surged by 822% in the first quarter on a year-on-year basis, in terms of funds raised. 

There are an estimated to 170 listings set for 2021, with US-listed Chinese enterprises and 'new economy' companies the main drivers of activity. 

Hong Kong stocks fell in Monday's morning session as traders prepare for the upcoming earnings season, though tech giant Alibaba soared as company officials played down the impact of a record antitrust fine imposed by Chinese regulators at the weekend.

The Hang Seng Index dipped 0.98% percent, or 281.56 points, to 28,417.24.

With reporting by Reuters

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