Will initial public offerings from Chinese companies make a comeback in Hong Kong and New York next year? Deal makers hope so—but they might have to start small.
Chinese companies have raised just $536 million from U.S. listings this year through Dec. 23, down around 96% from the total they raised throughout 2021. The proceeds of their Hong Kong listings are less than a third of last year’s haul. But after progress on resolving a long-running audit dispute between China and the U.S. and guarded hopes for a recovery in share prices, these companies may now be preparing to return to overseas exchanges in greater numbers.
Auto maker Zhejiang Geely Holding Group Co. is among the Chinese companies expected to boost IPO supply next year. The company filed a draft registration statement in December to spin off its Zeekr electric-vehicle brand through a U.S. IPO. A raft of smaller Chinese companies have filed documentation for listings in Hong Kong and the U.S., despite a clampdown this year on small-cap listings on American exchanges.
Deal makers expect the recovery in international IPOs from China to be gradual. The pickup could start as early as the second quarter, but the bulk of activity may not come until the second half of the year, they said.
“If these are the good-quality, big-value IPOs, I don’t think they would rush into that first glimpse of rebound,” said Bosco Yiu, a lawyer whose practice includes Hong Kong IPOs at Paul, Weiss, Rifkind, Wharton & Garrison LLP. “They would rather price it better than rush into a first-quarter listing.”
Growatt Technology Co., a maker of inverters for solar panels that had previously been aiming to raise as much as $1 billion, has delayed its IPO due to the volatile market, according to people familiar with the matter. The company, which in November filed updated paperwork after passing its listing hearing in Hong Kong, will consider launching the deal next year, some of the people familiar with the matter said. A spokeswoman for Growatt declined to comment.
Bankers expect secondary share sales and block trades—sales of large blocks of stock that can be executed as quickly as overnight—to recover more quickly than new listings.
“IPOs are always the last product to come back,” said Kenneth Chow, co-head of Asia-Pacific equity capital markets at Citigroup Inc.
The Chinese government made sweeping changes to its Covid-19 policies earlier this month, including dropping most testing requirements and reducing the power of local officials to impose widespread lockdowns. Attention has already shifted to the costs of reopening—but some bankers say the easing will help boost demand for IPOs from Chinese companies.
“With China reopening, we are seeing the sentiment starting to come back and that will definitely help some IPOs,” said Cathy Zhang, co-head of Asia-Pacific equity capital markets at Morgan Stanley. “We are seeing investors getting more active on China—they want to know what’s going on and what deals are coming next year. We haven’t seen this kind of investor engagement for a long time,” Ms. Zhang added.
Electric-vehicle manufacturers and their suppliers will be an important source of listing volumes from China next year, as will solar-panel makers and power companies, said Ivy Hu, a Hong Kong-based managing director for equity capital markets at UBS Group AG.
That builds on this year’s trend. CALB, a battery maker, and Zhejiang Leapmotor Technology Co., a car manufacturer, are among the companies in the EV sector that listed in Hong Kong this year—although Leapmotor’s shares plummeted on their debut.
The U.S. audit regulator recently secured complete access to inspect China-based audit firms, marking progress in a long-running dispute between the two countries. That resets a three-year potential delisting clock for Chinese companies already trading on New York exchanges—and means Chinese companies will continue to turn to U.S. investors to raise capital.
“If you think that you want to be considered a global company, you want to be able to attract global talents, it definitely still feels as though the U.S. is the first port of call,” said Matthew Culley, an emerging-markets portfolio manager at Janus Henderson Investors. He added that some Chinese companies he had talked to are considering ADR listings in the U.S. ahead of a possible secondary listing in Hong Kong.
There is a caveat: Chinese companies that want to list in the U.S. will need to survive tough scrutiny by regulators in both countries. That rules out a lot of tech IPOs—cutting out some of the biggest deals bankers could bring to market. ByteDance Ltd., the Beijing-based owner of social-media platform TikTok, had previously considered listing in either Hong Kong or the U.S. The company scrapped the plan last year, after Chinese regulators expressed concerns about data security.
“The data-sensitive ones are going to either be challenged or prohibited from listing in the U.S.,” said
a Nasdaq Inc. vice chairman overseeing business development for new listings in Asia Pacific and Latin America. “That’s just the reality.”
Hong Kong’s stock exchange has been trying to expand the kinds of companies that are able to list, most recently through a proposal to lower revenue requirements for companies in categories including semiconductors and artificial intelligence. That could also boost supply from China. A government push to develop the semiconductor sector has led to a rise in domestic listings by Chinese companies—creating one of the few bright spots amid a sharp slowdown in global IPOs this year.
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—Jing Yang contributed to this article.
Write to Dave Sebastian at firstname.lastname@example.org
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