As US IPO Market Declines, Listing Heads East to Booming China

beijingwalker · Sep 17, 2022

As US IPO Market Declines, Listing Heads East to Booming China

by Shawn Johnson

September 17, 2022

(Bloomberg) — The center of global initial public offering activity has shifted east to China as waves of volatility and bearish stock markets sent nearly all major listings in the US into the balance.

Stock listings in Asia have raised $104 billion this year, accounting for a record 68% of global volume, according to data compiled by Bloomberg show. In contrast, US IPOs represent only 14% of the $153 billion received globally, which has traditionally been the busiest listing market in the world.

Strong Asian performance is mostly down to Chinese IPOs, which continue to come thick and fast despite rising interest rates and the prospect of a recession putting a lid on stock sales for the first time in most major markets. Of the 10 largest listings globally this year, six were from Chinese companies either on mainland exchanges – the so-called A-share market – or in Hong Kong, data show.

“In 2022, as the world deals with inflation and global tensions, the IPO epicenter in terms of volumes has shifted east,” said James Wang, co-head of ECM at Goldman Sachs Group Inc. in Asia East Japan. “Such continuation appears to be sustainable for the time being, with some large Hong Kong IPOs ready for potential test markets before the end of the year.”

In the US, which accounted for more than half of last year’s record $657 billion in IPO proceeds, the market has come to a sudden halt as inflation fears and increased volatility keep valuations depressed and keep investors away from high-growth companies. Cause to stay away. Usually dominated by IPO activity.

Unwanted market conditions have led Mobileye NV and Chobani Inc. The much awaited listing like this has been pushed back or eliminated altogether. As of this week, just over $1 billion was offered in New York this year to private equity firm TPG Inc. Asia had 12, while the Middle East had four.

“We’re entering the kind of market where people are saying there’s dedication,” said David Ethridge, US IPO Services Leader at PricewaterhouseCoopers LLP. “It’s happening right now. They’re busy people and might not want to fight at the board level about starting the process when we’re not hearing anything good about an IPO.

Leaving New York

The delayed US deals are increasing a void that was already being created by an exodus of IPO candidates based in China. Just $636 million has been raised in New York by companies in China or Hong Kong, compared to about $16 billion a year ago.

Beijing and Washington worked out a deal to get US regulators to oversee audits of Chinese companies following a slowdown in US IPOs by Chinese companies, failing which they were kicked off US exchanges.

The prospect of forced delisting, as well as deteriorating Sino-US relations, have prompted US-traded Chinese companies to raise tens of billions of dollars in recent years through so-called homecoming share sales on Hong Kong or mainland exchanges. The high valuation back home was another attraction for him.

“The A-share market is somehow protected from global volatility,” said Zili Guo, Co-Head of Asia Equity Capital Markets at UBS Group AG. “It is largely a domestic market, and mostly driven by domestic money. The market position in the A-share market is relatively stable and it can still print deals consistently compared to the volatility we have seen in global markets.

This year, some of the biggest listings in Asia were for companies that have been moved out of New York. China Mobile Limited and CNOOC Limited received a combined $14 billion between them through their Shanghai share sale.

And there are signs of activity in Hong Kong, which had a slow first half. Chinese battery maker CALB Co. is anticipating a potential $2 billion IPO in the city, while electric vehicle maker Zhejiang Leapmotor Technologies will begin taking investor orders for a $1 billion offering next week, Bloomberg News reported.

Europe Calling

Even with preliminary agreement on the auditing issue in the US, there are doubts that an influx of Chinese companies into New York – they have raised $122 billion since the turn of the century – is back to previous levels amid rising tensions. Will come alternative.

“Chinese issuers now have more options when they seek offshore financing,” said Mandy Zhu, China’s head of global banking at UBS. “In addition to the traditional HK and US listings, they may do an A-share IPO first.” After that, companies can tap European exchanges through stock links between China and Europe, she said.

In fact, Europe is becoming a more attractive listing destination for Chinese firms than the US. Nearly $2.3 billion has been raised by mainland firms in Europe this year through newly expanded stock links between China and exchanges in Germany, Switzerland and the UK, helping fuel tighter listing volumes across the continent.

Of course, there’s a big deal going on in Europe that could double the region’s current IPO proceeds to $9.8 billion in one fell swoop. Bloomberg News reports that Porsche AG may launch an offering as soon as next week, which values the iconic sports-car maker as much as 85 billion euros ($85 billion).

And there are green shoots in America too. American International Group Inc. Key Life and Retirement Unit raised $1.68 billion this week in its biggest US IPO of the year, after pricing its shares at the bottom of a marketed range. It is being closely watched as a harbinger of better days to come, though it ended its first day of trading below the issue price.