The 3 IPOs to jumpstart China's tech sector and the flatlining Hong Kong bourse

Alibaba and JD.com Inc. have begun preparations for a trio of the year’s biggest Chinese debuts, heralding a wave of initial public offerings that promise to breathe new life into the struggling technology industry and Hong Kong’s stock market.

Cainiao Networks, Alibaba’s logistics arm, has kicked off discussions with banks for what may become the first of several IPOs by units of the e-commerce giant.

Formerly a bit of a go-to bourse for global IPOs – and the world’s top IPO index seven times out of the past 14 years – Hong Kong’s total IPO funds more than halved over Q1.

Even though the Asia-Pacific IPO market accounted for 59% of global IPO deals, according to new work from EY, the regional activity fell 6% by number and absolutely plummeted 70% by proceeds (year-on-year). EY recorded just 175 deals in the APAC and a mere US$12.7b in proceeds for the quarter.

Despite the lifting of almost all its zero-pandemic controls, Mainland China market was a quieter place, but with the state seemingly determined to electro-shock the tech sector back into life, EY projects a healthy near-term and it’s still the region’s driving force, accounting for more than 40% of all global IPO proceeds.

Like everywhere else the Asia-Pacific, it has adopted a “wait and see” approach so far this year, as investors keep their powder dry and look for further indicators of market recovery.

Hong Kong, usually a powerhouse for new listings, was uncharacteristically quiet.

It’s the former tech playground’s worst first quarter for incoming IPO money since the first three months of 2009, right after the previous US bank collapse we like to call the Global Financial Crisis (GFC).

Just 17 companies raised a mere US$830 million via IPOs, according to Refinitiv, the city’s lowest quarterly total since the Q2 2022 when funding fell to US$590 million.

Now in seventh place on the global IPO league ladder, this time Honkers can’t lay the blame on another wave of COVID-19.

Hong Kong’s biggest IPO for Q1 was the fuel cell engine maker Beijing Sino Hytec, which raised US$141 million in January.

That deal was only good enough for 50th place globally in terms of IPO proceeds for the quarter. The company has been listed on the Shanghai Star Market since August 2020.

Hong Kong’s IPO ranking will rise in the second half of this year,

Late last week, two JD.com subsidiaries filed for first-time share sales in Honkers, Bloomberg reported. Those three listings could raise about $5 billion between them, people familiar with the matter said.

The moves ignited hopes that Beijing — keen to resuscitate the world’s second-largest economy — is unfettering the private sector, allowing its biggest names to again pursue business and fundraising. Alibaba got the ball rolling this week by unveiling a six-way split that could usher several businesses — including Cainiao — onto public markets.

That shake-up accomplishes Beijing’s broader aim of carving up tech titans and diminishing their influence over swaths of the economy — while unlocking potentially billions of dollars in value.

The revival of the Chinese tech IPO train ends a year-long drought that set in after regulators pulled the plug on Ant Group Co.’s record IPO.

Once among the world’s most lucrative investment banking plays, the business dried up around 2021 when Beijing restricted the internet sectors from online commerce to gaming, and tightened requirements for overseas listings.

“For the big techs, spinoffs no doubt can boost shareholder return, unlock the company value and ease regulatory concerns related to anti-trust,” said Willer Chen, senior analyst at Forsyth Barr.

The IPO market is key for Chinese firms to bankroll expansion and expand their investor base just as XJP wants investment money to roll back in.

A number of Chinese tech names have lodged or resubmitted their Hong Kong listing applications in just the past week: Lalatech Holdings, another curious tech-driven logistics giant.

Then there’s the social media app Soulgate and a fitness app known as Keep Inc.

But there are bigger candidates: TikTok-owner ByteDance, ride-hailing giant Didi Global Inc and social media player Xiaohongshu are potentially waiting in the wings.

“The market sentiment in the first quarter was full of uncertainties, so companies preferred to hold up their deals,” Louis Tse Ming-kwong, MD at Wealthy Securities told the SCMP on Saturday. “High inflation and interest rate rises in the US and Europe, as well as the recent banking crisis all led to a quiet IPO market in Hong Kong and other markets.”

According to Refinitiv, China’s tech heavy ChiNext, just over the former Hong Kong border in Shenzhen, was the top IPO market worldwide in Q1, with 19 IPOs raising US$4.62 billion, but even its proceeds dropped 45% from a year earlier,

Alibaba’s announcement dovetailed with the return of its billionaire co-founder Jack Ma to China, as well as a series of official proclamations of support for the private sector.

But many entrepreneurs and tech executives, traumatised by almost two years of relentless scrutiny, remain wary of Beijing’s intentions given the Xi Jinping administration’s distrust of powerful private firms. And there’s no guarantee that splitting up and spinning off actually propels businesses over the long haul.

But Alibaba and JD are adding fuel to a trend that’s emerged this year.

Chinese firms have whacked their US and EU peers early on in the year in equity cash, lifted by positivity around China’s post-Covid future, just as potential recessions and bank runs hit the West.

A wave of listings will also benefit Hong Kong, long the prime venue for Chinese debuts until Beijing clamped down. The city has only seen about $852 million raised through IPOs so far this year, a fraction of the $4.1 billion raised in the same period in 2022.

Cainiao, which means amateur or rookie in Chinese, is on track to hit the market first in part because it’s had a long track-record as a standalone operation that supports other parts of the Alibaba empire. While loss-making, the unit has consistently racked up double-digit revenue growth and is one of the company’s most recognisable brands, a nationwide logistics giant that helps ship upwards of a billion packages during the company’s signature Singles’ Day shopping festival.

Shanghai’s main board ranked second with 18 new listings raising US$3.5 billion, while Abu Dhabi ranked third, with two deals raising US$2.97 billion.

The Middle East market had this year’s biggest IPO so far, as ADNOC Gas, a unit of Abu Dhabi National Oil Co in the United Arab Emirates, raised US$2.5 billion earlier this month.

Hong Kong’s ignominious slide into seventh on the global IPO sakes is one slot lower than the previous Q1 of 2022. Shangers ranked third last year, when Honkers fell to 10th spot in June before recovering with some big fourth-quarter listings.

IPO funds raised globally may have plummeted 61 per cent: EY

Under the guise of the former city-state’s stock-market operator (the Hong Kong Exchanges and Clearing), China’s also eased some of Asia’s toughest fundraising qualifications to lure more tech start-ups in to the bourse to raise capital.

Effective from last week, a Chapter 18C was added to Hong Kong’s listing rules to let companies with at least HK$10 billion (US$1.3 billion) in valuation list in Honkers for their IPOs, without having made a brass rupee in sales.