Chinese IPOs Taking Slow Steps to Re-Enter Markets Outside Mainland

Deal makers are hoping that initial public offerings from Chinese companies will make a resurgence in Hong Kong and New York in the coming year, though they may have to begin with smaller offerings.

Chinese companies have seen a drastic decrease in the amount of money raised from U.S. listings this year, with only $536 million raised compared to the total raised in 2021. The proceeds of their Hong Kong listings are also significantly lower than the previous year. However, with recent progress in resolving the audit dispute between China and the U.S. and optimism for a recovery in share prices, these companies may be planning to come back to overseas exchanges in larger numbers.

Zhejiang Geely Holding Group Co., a Chinese auto maker, is anticipated to increase the number of IPOs in the coming year. In December, the company submitted a draft registration statement to spin off its Zeekr electric-vehicle brand through a U.S. IPO. Despite the restrictions on small-cap listings on American exchanges this year, a number of smaller Chinese companies have filed paperwork for listings in Hong Kong and the U.S.

Mergers and acquisitions professionals anticipate that the revival of IPOs from China will be a slow process. It is possible that the uptick could begin in the second quarter, but the majority of activity may not occur until the latter half of the year.

Bosco Yiu, a lawyer from Paul, Weiss, Rifkind, Wharton & Garrison LLP whose practice includes Hong Kong IPOs, believes that the good-quality, big-value IPOs would not be in a hurry to take advantage of the first signs of recovery. According to Yiu, they would rather price it better than rush into a first-quarter listing.

Growatt Technology Co., a manufacturer of inverters for solar panels that had been planning to raise up to $1 billion, has postponed its IPO due to the unsteady market, according to sources familiar with the situation. The company, which submitted revised documents after passing its listing hearing in Hong Kong in November, is considering launching the deal in the following year, some of the people familiar with the matter said. A spokeswoman for Growatt declined to comment.

Financial experts anticipate that secondary share sales and block trades will bounce back faster than new stock listings. These block trades involve the sale of a large amount of shares that can be completed in a short amount of time, sometimes as soon as the following day.

Kenneth Chow, co-head of Asia-Pacific equity capital markets at Citigroup Inc., noted that initial public offerings (IPOs) are typically the last type of product to return after a market downturn.

The Chinese government recently implemented major alterations to its Covid-19 regulations, such as eliminating the majority of testing requirements and diminishing the authority of local authorities to enforce widespread lockdowns. Attention has already shifted to the expenses of reopening, but some bankers believe the relaxation of restrictions will increase the demand for IPOs from Chinese businesses.

Cathy Zhang, co-head of Asia-Pacific equity capital markets at Morgan Stanley, noted that the reopening of China has caused a resurgence in sentiment that will be beneficial to IPOs. She went on to say that investors are becoming more interested in the Chinese market, wanting to know what is happening and what deals are in the pipeline for the coming year. Ms. Zhang remarked that this level of engagement from investors has not been seen for a long time.

UBS Group AG's Hong Kong-based managing director for equity capital markets, Ivy Hu, stated that electric-vehicle manufacturers and their suppliers, as well as solar-panel makers and power companies, will be a major contributor to the listing volumes from China in the upcoming year.

This year has seen a continuation of the trend of EV companies listing in Hong Kong, such as CALB, a battery maker, and Zhejiang Leapmotor Technology Co., a car manufacturer. Unfortunately, Leapmotor's shares dropped significantly on their initial trading day.

The U.S. audit regulator recently achieved full access to examine audit firms based in China, signifying progress in a long-standing disagreement between the two countries. This reset the three-year potential delisting timeline for Chinese companies already listed on New York exchanges, meaning Chinese companies will still be able to rely on U.S. investors to obtain capital.

Matthew Culley, an emerging-markets portfolio manager at Janus Henderson Investors, noted that if a company wants to be seen as a global entity and attract global talent, the U.S. is still the first place to look. He also mentioned that some Chinese companies he had spoken to were considering American Depositary Receipt (ADR) listings in the U.S. before a potential secondary listing in Hong Kong.

Chinese companies that are looking to list in the United States must pass the scrutiny of both countries' regulators, which eliminates many tech IPOs and the large deals that bankers could have brought to the market. ByteDance Ltd., the Beijing-based owner of the social-media platform TikTok, had considered listing in either Hong Kong or the U.S., but the plan was abandoned last year due to Chinese regulators' worries about data security.

Robert McCooey, a Nasdaq Inc. vice chairman responsible for business development in the Asia Pacific and Latin America regions, stated that companies that handle sensitive data will likely face difficulties or be barred from listing in the United States. He added that this is simply the reality.

The Hong Kong Stock Exchange has been attempting to broaden the range of businesses that can list, most recently by suggesting to reduce the revenue requirements for companies in industries such as semiconductors and artificial intelligence. This could also increase the supply of Chinese companies. The government's effort to develop the semiconductor sector has caused a surge in domestic listings by Chinese companies, which is one of the few positive aspects in the midst of a significant decrease in global IPOs this year.