IPOs in China raise record $62 bln

2006 was a vibrant year for the capital market, with substantial growth in market capitalisation and trading activities in most of the major markets.

The performance of the Greater China capital market was particularly outstanding, with total funds raised from IPOs reaching a record level of USD 62 bln for the first time, exceeding the aggregated amount of USD 48 bln raised from IPOs in the United States (New York Stock Exchange, NASDAQ and American Stock Exchange), according to PricewaterhouseCoopers’ Greater China IPO Watch 2006.

The two mega IPOs, namely Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC), contributed significantly to this year’s stellar performance.

In 2006, there were a total of 140 IPOs in Greater China. The average deal size was USD 440 mln, up from USD 260 mln in the previous year.  This was higher than the average deal size of USD 220 mln in the United States and USD 130 mln in the United Kingdom.

Moreover, there was generally an increase in pricing, in terms of price earnings multiple (P/E), of IPOs across the Greater China capital market.

The aggregated market capitalisation in the Greater China capital market at the end of 2006 amounted to USD 3,455 bln, an increase of 79% when compared with the end of 2005, while 2006 annual trading value in Greater China nearly doubled to USD 2,969 bln.  There was an active foreign buying interest in shares listed on the Hong Kong Stock Exchange.

ICBC was the first company listed concurrently on both the Hong Kong Stock Exchange (H-share) and Shanghai Stock Exchange (A-share).  By the end of 2006, there were 37 companies dually listed on the Hong Kong Stock Exchange (with price set in Hong Kong dollars), as well as the Shanghai or Shenzhen Stock Exchange (with price set in renminbi).

“We are expecting more dual listings of Chinese companies on the Hong Kong Stock Exchange and the Shanghai or Shenzhen Stock Exchange to emerge in the near future.  Some of these dual listings might happen at the same time, while others might seek to list in one market before another,” said Edmond Chan, Capital Market Services Group Partner at PricewaterhouseCoopers.

“Moreover, many Chinese companies that are already listed solely on the Hong Kong Stock Exchange as H-share or Red Chip companies have also expressed their interest in seeking an additional listing in the A-share market in Shanghai or Shenzhen.”

At the end of 2006, the market capitalisation of the Greater China capital market was 107% of Greater China’s Gross Domestic Product (GDP) as compared to 71% in 2005.  However, this ratio was still behind those of mature capital markets such as United Kingdom (at 152% of GDP) and United States (at 148% of GDP).  In addition, the annual trading value in the Greater China capital market was 86% of its market capitalisation in 2006, while it was 200% in the United Kingdom and 174% in the United States.

“These statistics indicate that the Greater China capital market has yet to achieve its full potential,” said Richard Sun, Assurance Partner at PricewaterhouseCoopers.

Greater China’s market growth continues to be promising, and Hong Kong will maintain its position as an international fund-raising centre with its proven ability to act as a fund-raising platform for mega-sized IPOs.

“The Hong Kong Stock Exchange has recently issued guidance to allow companies incorporated in more overseas jurisdictions to get listed in Hong Kong.  It is expected that more international companies, especially those with business in Greater China, will seek listings on the Hong Kong Stock Exchange,” commented Sun.

“This year, we are expecting another robust year for IPO activity in Greater China even though there may not be mega sized IPOs comparable to that of ICBC or BOC.  We are anticipating that Shanghai will exceed Hong Kong in 2007 in terms of new funds raised as a number of large Hong Kong listed H-share companies have announced their intention to raise funds and list A-shares in Shanghai or Shenzhen,” concluded Sun.