Hong Kong Wins the IPO Race… Again

It isn’t easy to compete with the mighty U.S. stock exchanges, but Hong Kong managed to beat them in one key respect last year — IPOs. According to data from research company Refinitiv (formerly Thomson Reuters), the Hong Kong Stock Exchange’s IPOs collectively raised just over $36 billion (HK$282 billion) in 2018. That made the exchange the clear No. 1, as this tally was far ahead of the runner-up — The New York Stock Exchange, in which new issuers raised a bit under $29 billion (HK$227 billion).

2018 was hardly the first year Hong Kong took the crown — it occupied the throne in 2015 and 2016. Here’s how the exchange regained it.

The factor of two

The one event that helped propel Hong Kong to the top of the IPO heap last year was a simple change in the Hang Seng’s listing rules. Last April, the index decided to allow companies with dual-shareholder class structures to list. It also admitted pre-revenue biotech companies to the club. Both forms of company are popular on IPO markets.

Dual-shareholder arrangements are common with tech enterprises whose founders are still actively involved in their company’s operations. In order to maintain a tight grip on the company’s ownership, they divide the shares into two classes. The upper class (usually called A shares) confers the majority — or even all — of the voting rights. The lesser class or classes (B shares, typically) are often far higher in total share numbers, but significantly lower in terms of voting power.

This change mattered because several top Hong Kong IPOs in 2018 had dual-class share listings. This well-heeled group includes the exchange’s IPO champion for the year, mobile phone giant Xiaomi (which, by the way, was the first dual-class company to list on the bourse). Online delivery platform operator Meituan-Dianping also has dual-class stock.

Xiaomi and Meituan-Dianping, by the way, were not only two of Hong Kong’s largest IPOs last year, they made the top five across all of Asia. All in all, Hong Kong took three of those places, the third being telecoms infrastructure specialist China Tower.

The mainland on the move

Note that all three of those companies are based in mainland China but have decided to trade in Hong Kong. This market continues to benefit from its inclusion in the mainland’s business life. We could say the same for all of Asia, which as a whole saw its newly listed companies raise $109 billion ($HK 854 billion) from IPOs in 2018 — up a very encouraging 27% on the previous year’s figure.

China is, naturally, a key catalyst of this growth. This is why the performance of that economy matters so much to associated locales such as Hong Kong, to say nothing of the broader region. The mainland’s economy isn’t as hot as it once was, but it’s still growing, and access to capital is one reason why. That, combined with the change in listing rules, helped put Hong Kong at No. 1 on the IPO league tables last year.


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