Returning firms on the horns of IPO dilemma

The minimum market cap for a secondary listing in Hong Kong has also been lowered under the revised regime, which took effect on Jan 1.Chinese issuers without a WVR structure can seek a secondary offering if their market cap reaches HK$3 billion with a track record of good regulatory compliance for five full financial years on a qualifying exchange such as the Nasdaq. For those with a market cap of at least HK$10 billion, the compliance period will be shortened to two full financial years.

Prior to the revised policies, such secondary listing applicants to the Hong Kong exchange were required to ensure their respective market cap reached HK$40 billion at the time of listing. If not, a minimum market cap of HK$10 billion combined with a minimum HK$1 billion of revenue for the most recent audited financial year sufficed.

James Wang, head of equity capital market for Goldman Sachs in Asia ex-Japan, said that Hong Kong has a large base of international investors and issuers. The wave of returning US-listed Chinese companies will rise in Hong Kong in the coming months, while more and more Chinese companies will also seek IPOs in Hong Kong.

But they would face challenges on their way. For instance, the less-than-stellar record of the Hong Kong bourse in 2021 is causing concern to IPO aspirants, market insiders said. The exchange recorded 94 IPOs last year with total financing coming to HK$323.7 billion, according to EY.

The two key local gauges fell 35 percent and 19 percent year-on-year, respectively. The Hang Seng Index dropped 14 percent in 2021 and the Hang Seng Tech Index touched a historic low by shedding more than 30 percent.

The lower liquidity of the Hong Kong stock exchange may delay US-listed Chinese companies' plans to return home, said Lu Jie, head of investments for China at Robeco, a global asset management firm.

The average daily turnover of the securities market in Hong Kong was HK$166.7 billion last year, according to data from Hong Kong Exchanges and Clearing Ltd.

Lawrence Lau, EY assurance partner, admitted that Hong Kong's IPO activities will continue to develop vigorously. But investors still need to keep an eye out for a few objective factors, including the persisting upside risk of global inflation, the potential fluctuations in overseas stock markets due to the US Fed's tightening cycle process, and the potential pressure on overseas capital outflows due to Fed's potential cuts in government-backed debt purchases and interest rate hikes.

China-US relations and the challenges of the geopolitical landscape also add uncertainties to the investment arena, Lau said.