Beijing's tech crackdown cooling IPO market in HK

HONG KONG • Public listings in Hong Kong are tracking at their slowest pace since the aftermath of the global financial crisis, as weaker markets and China's clampdown on its biggest tech firms chill sentiment.

Just seven companies have gone public in the second quarter so far - on track for the fewest since 2009, according to data compiled by Bloomberg. The muted activity stands in sharp contrast to the rush to go public last year or even at the start of this year.

First-day performances have also struggled: May's initial public offerings (IPOs) - which include warehouse and distribution company JD Logistics and property manager Central China Management - delivered the worst average debut performance in 15 months, the data shows.

The cool-off comes as China slapped a record fine on Alibaba Group Holding and ordered 34 of the country's largest tech companies to rectify any anti-competitive business practices. That is making some firms more skittish about going public and investors worry about further actions from regulators. China has said the moves are to protect consumers and maintain financial stability.

"Investors are no longer comfortable paying sky-high valuations for some companies," said Wealthy Securities' Hong Kong-based managing director Louis Tse. "Because of the intervention of the government, some issuers will have to revise down their multiples."

China's top three tech firms - Tencent Holdings, Alibaba and Meituan - have lost more than US$400 billion (S$530 billion) in value from their highs of just four months ago. Hong Kong's stock market tumbled into a technical correction earlier this year, dragging valuations further. The benchmark Hang Seng Index is one of the world's worst performers since its February high.

As a result, capital raised on the Hong Kong exchange this year is only half of its levels last year, impacting the city's position as a top fund-raising hub. In comparison, volume on the Nasdaq has already surpassed its 2020 number, thanks to a boom in blank-cheque company listings earlier this year.

To be sure, Hong Kong's year-to-date IPO volume is still more than triple the same period last year, with nearly US$23.9 billion raised. Meanwhile, the Spac (special purpose acquisition company) boom in the US is fizzling out.

Inflation worries are also making tech firms going public a harder sell as investors dump shares with rich valuations. Beijing's scrutiny of firms, including those in technology and education, has also forced investors to scale back earnings forecasts, investors say.

"We have seen some volatility and that has reflected on investors' appetite, but deals that are priced appropriately will get done," said Mr Francesco Lavatelli, head of equity capital markets for the Asia-Pacific region at JPMorgan Chase.

Fintech firm Bairong slumped 16 per cent when it began trading in March, while healthcare company Zhaoke Ophthalmology fell 15 per cent in late April. JD Logistics, which raised US$3.2 billion, closed only 3 per cent above its offer price in its debut recently, in contrast to another JD.com unit, JD Health International, which surged 56 per cent on its first day last year.

The test for whether the city's IPO market can stage a revival will come from some upcoming listings, with activity seen picking up again with share sales by firms including a dairy business and an invisible teeth aligner maker.

Large listings include China Youran Dairy Group's offering of as much as US$799 million, which kicked off its roadshow yesterday. Biopharmaceutical firm CARsgen Therapeutics Holdings is looking to raise as much as US$401 million and also started taking investor orders yesterday.

Angelalign Technology, China's leading invisible orthodontic producer, launched an IPO of as much as US$375 million last Thursday. Its retail tranche was already 674 times oversubscribed on its first day of order-taking, the Hong Kong Economic Journal reported.

At least three other companies started gauging investor demand for their IPOs yesterday, including Chinese bubble tea chain Nayuki Holdings and two property management companies.

Investors are also closely watching the reception to mega flotations, among them Chinese gaming giant NetEase's music streaming arm which filed late last month for a Hong Kong IPO that could raise about US$1 billion.

"The market needs at least two or three blockbuster IPOs to revive sentiment. That means you need both subscription ratio and first-day performance to surprise the market on the upside," said Mr Kenny Wen, Everbright Sun Hung Kai strategist. "The good days of the IPO market are not coming back yet."

BLOOMBERG