HK$212 Billion Raised Through IPOs on HKEX in H1 2021, Followed by a Strong Pipeline

The Hong Kong Stock Exchange (HKEX), which completed 46 IPOs in the first six months of the year, posted a set of record-breaking revenue and profits in its 2021 Interim Results released on Wednesday, August 11.

These new company listings raised HK$212 billion in total, highlighting a 128% year-on-year growth. New economy and biotech companies contributed 92% of total funds raised, including the landmark IPO of XPeng, the first dual primary listing with a weighted voting rights (WVR) structure, taking advantage of the new listing regime launched three years ago. HKEX also revealed a robust pipeline, with more than 200 companies with filings in the docket.

The capital markets in mainland China also gained strong momentum in the first half of 2021 on the back of the economy’s rapid recovery from COVID-19. Following the new Securities Law and the introduction of a pilot program of a registration-based system on ChiNext, new share issuance accelerated sharply, with a significant increase in the number of shares issued and a decrease in the average amount of financing. Both the Star market and the ChiNext market achieved significant improvement in issuance speed and supervision of disclosures, having issued new guidelines and amended the information disclosure management measures for listed companies and the information disclosure guidelines for certain industries. The Star market, in particular, introduced guidelines for the evaluation of technology innovation attributes. In addition, the on-site inspection and disclosure verification responsibilities of issuers and intermediaries have been substantially strengthened as well.

The Hong Kong and Mainland markets are closely tied to each other through a set of Connect schemes, including the Shanghai-Hong Kong Connect and the Shenzhen-Hong Kong Connect, which gives mainland Chinese investors access to equities listed on the Main Board of HKEX and international investors access to the constituent stocks of the main stock indexes of the Mainland. There is also the Bond Connect, which allows international investors in Hong Kong to access the mainland bond market. All these schemes set record half-yearly highs.

While both Hong Kong and mainland China rank among the top IPO markets in the world, they tend to attract different kinds of investors—the stock exchanges in Shanghai and Shenzhen have higher participation from retail investors, while Hong Kong attracts more institutional investors, many of whom are based overseas. Consequently, Hong Kong remains an attractive destination for mainland companies seeking global exposure and source of capital, and many high-profile industry giants based on the Mainland view Hong Kong as an ideal forum to raise funds.

The increasingly tightened regulation of and government scrutiny on Chinese companies’ overseas listings also make Hong Kong a preferred choice compared to foreign markets, such as the United States. President Biden is largely continuing the policies of the previous administration targeting Chinese companies listed in the United States, including those that may force Chinese companies to de-list unless they comply with U.S. audit rules by giving the U.S. regulators access to their audit books. The SEC also threatened suspension of IPOs filed by Chinese companies unless additional disclosure requirements are met.

In the meantime, Chinese regulators also imposed strict restrictions on companies in certain industries, as seen from the recent incidents in the education and online gaming sectors, as well as the cybersecurity review of Didi, which prompted sharp sell-offs in these stocks traded on the U.S. market. It has been reported that Beijing may consider exempting companies going public in Hong Kong from the cybersecurity pre-approval requirement, which would effectively make it a lot easier for Chinese companies to list in Hong Kong.

Winston & Strawn has a robust capital markets practice in both Hong Kong and the United States, having represented issuers and underwriters in IPOs and going-private transactions. In China, the firm’s strategic alliance partner, Yuanda China Law Offices, offers a strong bench of highly recognized data security professionals and regulatory and compliance lawyers led by a former Chinese prosecutor. Together, the YuandaWinston team is well positioned to assist Chinese companies in navigating the regulatory challenges and commercial considerations for success in the capital markets, domestically and internationally.