A-share IPOs forecast to pick up

Analysts expect rate of new mainland listings to recover in second half of 2019

Initial public offerings on the Chinese mainland's A-share market are expected to stabilize and recover in the second half of 2019, according to PwC forecasts.

"We predict the A-share market will remain in a cautious mood during the first half of 2019, but will stabilize and recover in the second half due to marginal improvements in bearish situations," said Frank Lyn, markets leader of PwC for the Chinese mainland and Hong Kong.

The professional services firm estimated there will be 130 to 150 A-share IPOs this year, with total deal sizes reaching 100 billion to 120 billion yuan ($14.6 billion to $17.5 billion).

A-share IPOs slowed significantly in 2018, caused in part by the China Securities Regulatory Commission's stricter review process, as well as an economic growth slowdown, market volatility and ongoing geopolitical uncertainty, according to PwC, which provides audit and assurance, tax and consulting services.

The number of IPOs on the Shanghai and Shenzhen stock markets fell to 105 in 2018, compared with 436 in 2017, hitting a five-year low. The amount of funds raised dropped to 138.6 billion yuan last year, down by 40 percent year-on-year.

"The just-concluded Central Economic Work Conference set the direction for the A-share market development in 2019. Continuous proactive fiscal policy and prudent monetary policy, cutting taxes and administrative fees on a larger scale, and other priorities are of great significance in boosting investors' confidence, guiding market expectations, and promoting the stabilization and recovery of A shares," Lyn said on Wednesday.

The conference has also unprecedentedly improved the capital market's position by putting forward various proposals, such as increasing the proportion of direct financing, which indicates the potential of China's capital markets in the future and the space for reform, he added.

China has taken a number of measures to further open up its capital markets to foreign investors, aiming to benefit the markets in the long run.

On this basis, the highlight of the country's IPO market in 2019 will be the establishment of a science and technology innovation board at the Shanghai Stock Exchange, Lyn said.

President Xi Jinping announced China's decision to launch the new board and experiment with a registration system for listed companies at the opening ceremony of the first China International Import Expo in Shanghai on Nov 5.

In order to attract domestic and foreign individual and institutional investments in excellent innovative companies, Lyn suggested the regulatory authorities could allow new IPO applicants to adopt weighted voting rights structures, called dual-class shares, and to list in both the Chinese mainland and in Hong Kong, in addition to lowering the minimum profit requirements for those applicants.

At a news conference releasing EY's annual IPO report on Dec 27, Jane Yang, EY China government and public service market segment leader, said the science and technology innovation board will be launched in the first half of 2019 at the earliest, and the regulator will implement a new registration-based IPO system.

She said she expects companies focusing on intelligent manufacturing, advanced technologies and new materials will become the main driver of new listings on the new board.

As China has ramped up support for the new economy in the A-share market through policy reforms, unicorn companies have already accelerated their IPO plans, Yang added.

Last year, the technology, media and telecommunications (TMT) industry beat all other sectors in the A-share market in terms of funds raised.

"With the benefits from the consistent national policies in support of the capital market serving the real economy (the part of the economy that is concerned with actually producing goods and services), the launch of the Sci-Tech Innovation Board and pilot registration system, and other factors, are expected to boost A-share IPO activities in 2019," said Terence Ho, EY China IPO leader.

TMT, materials and industrials were the top three industries in the A-share IPO pipeline in terms of the number of companies, according to Ho.