Chinese ECM activity in 2022 was decidedly lacklustre, with most business confined to the A-share market. But China’s post lockdown reopening has spurred a renewed bout of economic activity and the consequent growth is likely to reignite activity in equity capital markets for corporate China.
Hong Kong could attract a greater share of any action if investors can look past global macroeconomic concerns. The right conditions are in place with the Hong Kong exchange making it easier for technology-focused companies to list there.
The break-up of mega companies, such as Alibaba, as they look to generate value from their different divisions could also generate a new pipeline of IPOs.
On the mainland, changes to rules and regulations have given companies more flexibility to set price ranges and conduct bookbuilding for their IPOs. Demand is there for the better-known companies. Jumbo deals during the pandemic showed that the A-share market has a sufficiently deep investor base to comfortably absorb multi-billion-dollar deals. International interest in the domestic sector’s equity markets is also growing for the best names.
The biggest barriers to offshore listings appear to have been lifted after China and the US reached agreement on audit inspections last year. That agreement clears the way for Chinese companies to list in the US, but only if they are confident that tensions between the two countries will not pose problems in the future. It is not the right market for all companies.
Regulatory requirements have been finalised after a period of uncertainty for some industry sectors, and companies will need to undergo screening before they will be allowed to list offshore.
Chinese issuers are also expected to tread the path towards Europe, where they have had some recent success in broadening their funding avenues and achieving added flexibility through the sale of GDRs. But the flow may slow down in the short-term as issuers and arrangers adapt to regulatory changes for this avenue of capital raising.
The good news is that whatever short-term disruptions may be caused by geopolitical tensions or changes to regulations, recent years have shown that China’s companies have plenty of routes to raise equity capital. The onshore stock markets have demonstrated their depth, and growing international investor interest will only add to this, while issuers have found plenty of routes offshore to diversify their funding channels.
Even if global stock valuations take some time to recover, China’s pace of economic growth means that it will continue to be the growth engine for the region – and the source of jumbo equity deals.
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