The Mainland’s decision this week to allow fewer IPO listings in 2014 may soothe concerns about a share glut in Shanghai, but analysts say the decision is a bigger boon for the world’s top listing venues such as Hong Kong.
A hundred companies listing on the Mainland this year -- may mean five times more listings overseas in choice venues such as Hong Kong.
There’s a backlog of more than 600 companies wanting to list on the Mainland. That huge logjam – the result of a 14-month ban on IPO listings. But soon after that was lifted, the Mainland markets tanked, on fears of a share glut from the onrush of listings. That compelled Mainland regulators to take a step back and fine-tune the rule. Now, only a hundred Mainland companies - or one-fifth of the total - will get approval to list on the Mainland markets this year.
But even that creates another problem, says Francis Lun of GEO Securities.
"For the five hundred companies that had not gone to be listed in China this year, they want the money, they need the money, where will they go? Chances are many of them will come to Hong Kong, Singapore, New York or London. What China loses is the world’s gain." Francis Lu, CEO of GEO Securities said.
Chinese Internet companies though will be the U.S. market’s gain, says Lun, as they’re likely to choose New York over Hong Kong for their listing, just as Alibaba did. Alibaba earlier this month filed its application for a U.S. listing, after protracted negotiations with Hong Kong on contested listing rules.
But Hong Kong will still lord over all other listing venues when it comes to Mainland property companies wanting to raise money. That’s because Hong Kong already boasts of a mature bond market - where property companies can sell debt and raise money.
Even then, the overall prevailing market sentiment for IPO listings will still be weak - and will only begin to pick up in the fourth quarter with the planned link up between Hong Kong and Shanghai, says Ben Kwong of KGI Asia.
"The Shanghai Hong Kong stock connect will be implemented more or less in October or November so by that time we will see more funds coming back to Hong Kong and the overall sentiment will become more positive." Ben Kwong, Director-Head of Research of KGI Asia said.
For now, investors may hear and see more of this – as Mainland companies that don’t make the quota - get their fund raising started in alternative venues such as Hong Kong.