Global capital market fluctuates under COVID-19 in Q1 2020 while A-share IPOs top in deal numbers and proceeds

• A series of measures introduced to stabilize capital markets would help maintain steady progress in A-share IPO activities for the rest of 2020

IPO activities in Q1 2020 initially rode momentum carried from Q4 2019. Despite the global impact of COVID-19 on the capital market, A-share IPO activities remained stable, ranking the first both in deal numbers and proceeds. Also, the recent implementation of the new Securities Law and the ChiNext reform revolving around the registration system are expected to further boost the IPO market in mainland China. These and additional findings were published today in the EY quarterly report, Global IPO trends: Q1 2020.

According to the report, Greater China deal numbers increased 34% (90 deals) while proceeds increased by 104% (US$13.2b) compared to Q1 2019, with 52 IPOs from mainland China (34 IPOs in Shanghai Stock Exchange and 18 IPOs in Shenzhen Stock Exchange) raising US$11.3 billion and 38 IPOs from Hong Kong raising US$1.8 billion. By deal numbers, the Hong Kong Stock Exchange (HKEX) and the Shanghai Stock Exchange ranked top two among global exchanges. By proceeds, the Shanghai Stock Exchange led the way with US$9.8b thanks to the mega IPO of Beijing-Shanghai High Speed Railway Co., Ltd.

In mainland China, IPO activity remained stable in Q1 2020. In fact, more IPOs came to the market in February (21 IPOs) than January (16 IPOs), with smaller average deal size. Industrials was notably the most active sector in mainland China by deal numbers in Q1 2020, followed by the technology and health care sectors.

The STAR market continued to play an important role, accounting for 44% of mainland Chinese deal numbers and 36% by proceeds in Q1 2020. Besides, a strong IPO pipeline and supportive IPO policies will sustain IPO activity in the Shanghai, STAR and Shenzhen markets in the coming months. This includes the new Securities Law that came into force on 1 March 2020, which will see the gradual rollout of the registration system in individual stock exchanges. Once the system is launched, IPO candidates can start submitting their listing applications to targeted stock exchanges for approval.

In Hong Kong, IPO activity on the HKEX declined significantly in Q1 2020 from Q4 2019. Year-on-year, Q1 2020 saw a modest rise (6%) in deal numbers compared with Q1 2019, while proceeds declined 32%. There was no IPO from mainland Chinese companies on the HKEX in February. Some IPO candidates have chosen to postpone their IPO plans while the IPO candidates unaffected by current volatility will continue to prepare for their IPO launch in 2020, using webcasts for roadshows and adapting pre-launch activities to reflect the current environment.

In the meantime, the HKEX has issued a consultation paper on corporate weighted voting rights (WVR) beneficiaries. Ringo Choi, EY Asia-Pacific IPO Leader, said: “If this policy is approved and implemented, we expect some mega IPOs with a corporate WVR structure will come to the market in the second half of 2020. Additionally, the valuation of the HKEX remains relatively low compared to other major markets. This may drive an increase in investor demand, which would bode well for IPO activity in Hong Kong.”

While COVID-19 has impacted all companies, some sectors have been hit harder than others. IPO candidates looking to go public in Greater China will need to take into account the profit and/or market capitalization listing requirements of their targeted stock exchange. On the flip side, COVID-19 has created business opportunities that are likely to continue once the outbreak is under control, particularly in the health care sector. IPO companies that can take advantage of these opportunities will likely attract strong market interest.

Terence Ho, EY Greater China IPO Leader, said: “Despite the impact COVID-19 has had on Greater China IPO markets in Q1 2020, we are cautiously optimistic about the economic and IPO outlook for the rest of 2020. The Chinese Government has already rolled out timely policies to help companies, with more economic stimulus on the way. These efforts should help the economy and IPO markets recover more quickly when the outbreak is controlled.”

-Ends-

Notes to Editors

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation are available via ey.com/privacy. For more information about our organization, please visit ey.com.

About EY Initial Public Offering Services

Going public is a transformative milestone in an organization’s journey. As the industry-leading advisor in initial public offering (IPO) services, EY teams advise ambitious organizations around the world and helps equip them for IPO success. EY teams serve as trusted business advisors guiding companies from start to completion, strategically positioning businesses to achieve their goals over short windows of opportunity and preparing companies for their next chapter in the public eye. EY advisors served on companies that raised 67% of all IPO proceeds in 2019. ey.com/ipo.

About data

The data presented in the Global IPO trends: Q1 2020 report and press release is from Dealogic and EY. Q1 2020 (i.e., January-March) is based on priced IPOs as of 17 March 2020 and expected IPOs in March 2020. Data is up to 18 March 2020, 9 a.m. UK time. All data contained in this document is sourced from Dealogic, CB Insights, Crunchbase and EY unless otherwise noted.

This news release is issued by the EY China practice, a part of the Ernst & Young global network.