Register for real-time alerts, custom portfolio, and market movers
Despite restrictive regulatory conditions, the IPOs of Chinese technology firms have been a driving force supplying Hong Kong Exchanges and Clearing (HKEX) with their best ever first half to a year in terms of IPO proceeds. This growth in the face of adversity shows that Chinese startups will play a key role in shaping the initial public offering landscape throughout the rest of the year.
The listings of five Chinese tech startups helped to deliver as much as two-thirds of the Hong Kong stock exchange’s IPO proceeds of $26 billion – amounting to a H1 record high for the first six months of 2021. This figure represents a $26 billion increase over the same time frame from 2020.
Notably, Kuaishou Technology, a company that runs a short-video platform as a rival to TikTok, generated $6.2 billion in its HKEX debut back in February, and was the world’s top-earning initial public offering for H1 of 2021.
Another big arrival was JD Logistics, the tech-based delivery offshoot of JD.com, which raised a huge 3.6 billion in May. Further growth was driven by secondary listings, with Chinese search engine firm Baidu, video platform Bilibili and travel booking firm Trip.com raising $7.4 billion collectively in April.
Furthermore, four of the five aforementioned firms made the list of the top 10 IPOs globally in terms of funds raised for H1 of 2021.
(Image: Financial Times)
However, as the table above shows, Chinese firms aren’t just a driving force across Asian IPO markets – they’re also arriving on US shores at a rate that’s never been seen before.
The timely scaling process of Chinese tech has arrived when global IPO markets look stronger than ever, but with regulators tightening the screw on overseas listings, will China help to keep the good times rolling? Or will listings be curbed for H2?
Beijing Tightens Grip on Tech
We may be seeing record numbers of Chinese tech firms arriving on US shores and exchanges around the world, but this trend has been accelerated by the tightening of regulations surrounding IPO applicants domestically.
Maxim Manturov, head of investment research at Freedom Finance Europe says that “People could start investing more in the West, while the Chinese companies are currently unable to IPO overseas. On the other hand, the investors from the EU and the US may also flock to China, as more companies with good potential could start IPO’ing in the mainland. Overall, there may be more Asian investors in the Western markets, but not that more so that it could become significant.”
This has been evidenced by the halting of Ant Group’s $37 billion floatations last year, with firms jumping to Hong Kong and other overseas markets as safe havens away from the increasing scrutiny of regulators.
In fact, more than 100 companies have withdrawn applications to list on the Shanghai STAR MArket and Shenzhen’s ChiNext following Ant’s termination of its IPO in November 2020, according to Reuters data.
This wave of withdrawals come as a result of far greater scrutiny imposed by regulators for listing prospects in China. These new rules can lead to significant delays, outright rejection and even penalties, according to bankers and company executives.
The widespread initial public offering exodus also raises some concern over the due diligence performed by underwriters during the filing process.
(Image: Value Walk)
As the chart above shows, we’re in the middle of a surge in the IPO market that hasn’t been seen since the height of the dotcom boom. But if China continues to restrict companies listing domestically, it’s likely to push more firms towards Hong Kong and New York at a time when it’s imperative for global exchanges to demonstrate value and show their worth.
China launched STAR two years ago with an approach towards registration and disclosure that was similar to the currency approach in the US. The move was made in an attempt to encourage more flotations within the country and to fast track listings.
However, Ant’s IPO was a cautionary tale that’s sparked more tech companies looking outside of China. After regulators expressed their concern about some aspects of Ant’s business model the initial public offering was suspended, and regulators started to focus increasingly on risk control.
Global Outlooks
Chinese companies are also identifying markets in the US as an opportunity to expand globally. When ride-hailing company DiDi went public on the Nasdaq via an IPO that raised $4.4 billion and valued that company at over $70 billion, it became the biggest Chinese company since Alibaba to list in the US.
However, shortly after its flotation, DiDi’s shares plummeted due to a regulatory clampdown by Beijing on US-listed Chinese companies. As a result, DiDi’s mobile app has been taken down from app stores across China, making it impossible for new customers to sign up for its service.
Although this may seem live evidence of the US and China trade war further limiting the potential of Chinese companies successfully launching on public markets, the founders of DiDi view the Nasdaq listing as a key aspect of securing global growth.
Having already won a price war with Uber in China, DiDi is now looking to expand into Uber’s markets in Europe and South America, and the company sees a US floatation as an essential avenue in achieving this global outlook.
With European and US regulations making IPO participation more straightforward for retail investors, platforms like Freedom24 have the ability to open initial public offerings from Asian companies arriving on US exchanges to the public – with companies like Korean firm Coupang already benefiting from the broader levels of participation.
The recent release of Robinhood’s IPO Access function within the wildly successful US investing platform has also helped to not only pave the way for wider IPO participation but to also introduce the company to the app’s user base of 13 million.
Although the best and brightest of China’s tech startups are locked in a battle with domestic regulators, the firms are making their presence felt all around the world, with overseas flotations and global ambitions. Whichever direction the IPO market takes throughout the second half of 2021, we can be certain that Chinese tech will be at the centre of the action.
