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HK’s IPO dry spell ends with big China deals

After a dismal first half of the year, things are looking up for initial public offerings (IPOs) in Hong Kong as several large Chinese companies go public in the second half.

Battery materials maker Tianqi Lithium Corp (天齊鋰業) just opened its books for Hong Kong’s first debut of the year, which is expected to gross more than $1 billion, while China Tourism Group Duty Free Corp (中國旅遊集團中免) could relaunch an offer of approximately $2 billion.

They, along with several other mid-to-large deals in the pipeline, are poised to revive a dormant market in which companies raised a paltry $2.6 billion between January and last month. That was a 92 percent drop from the same period last year and the lowest total for the first six months since 2009.

Photo: Bloomberg

The pickup in upcoming listings speaks to an improving backdrop for valuations as the easing of COVID-19-related restrictions and Beijing’s call-back on corporate crackdowns fuel a world-best equity rally in China and Hong Kong.

Better clarity on the rules for overseas Chinese stock offerings could also encourage “more new listings” in Hong Kong, Credit Suisse Group AG analyst Charles Zhou (周成) wrote in a note last month.

The stream of positive news out of China has propelled the benchmark CSI 300 index towards a technical bull market and analysts expect more constructive policy reinforcements in the second half of the year.

“If that happens, hopefully it would help advance some of our pipeline of equity deals waiting for a better market window to open,” said Selina Cheung (張倩嘉), co-head of Asia Equity Capital Markets at UBS AG in Hong Kong.

In the first half, there was only one IPO in Hong Kong that was larger than $500 million — in January. The majority of the companies that debuted this year trade underwater.

Notably, IPO activity has dried up globally as investors fret over inflation, tightening central banks and recession fears.

Hong Kong’s dry spell now appears to be ending with a spate of smaller deals late last month as issuers rushed to capitalize on a brief window of opportunity in favor of Chinese stocks.

Tianqi Lithium’s potential listing of $1.7 billion paves the way for this month to be the strongest month for Hong Kong IPOs this year. Global Holdings) and Wego Blood Purification, a dialysis unit of China’s Wego Group (Wego Group).

China’s Imeik Technology Development Co (愛美客技術發展), with a market capitalization of $19 billion, has also applied for a listing on the Hong Kong Stock Exchange.

Many of the potential listings are already trading in New York, but are trying to target investors closer to home amid fears of being kicked out by China’s financial regulator over a regulatory impasse with the US.

Such is the case of consumer goods retailer Minso Group Holding Ltd, which is targeting as much as $116 million.

Others have opted for an Asian IPO to launch, a mechanism in which no new shares are sold.

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