Entering the fourth quarter, the previously surging Hong Kong IPO market has cooled somewhat. After the first half of the year saw a cluster of new listings and red-hot subscriptions, recent months have seen multiple signals pointing in the same direction — from the break-issue ratio to subscription multiples, and from listing pace to filing frequency: the heat of Hong Kong IPOs has retreated. Data shows that the break-issue rate for Hong Kong new listings in the third quarter reached 45.2%, a marked increase from earlier levels. Since October, for more than 20 consecutive days, the Hong Kong Stock Exchange has not seen any first-time filings from conventional IPO candidates, breaking this year's high-frequency filing pace for the Hong Kong IPO market. In addition, several companies including SSY Group Ltd, Slender West Lake Cultural Tourism, and Weiyi Zhizao have recently announced delays to their listings.
Break-issue rate climbing, IPO pace slowing
A research report from CITIC Securities shows that the break-issue rate for Hong Kong IPOs in the first three quarters was 21.9%, with the average and median first-day returns at 52.9% and 14.1% respectively — both the best levels since 2018. However, the break-issue rate for Hong Kong IPOs in the third quarter reached 45.2%, with average and median first-day returns of 17.8% and 0.0% respectively. From this it is clear that the performance of Hong Kong new listings has weakened significantly since the third quarter.
The rise in Hong Kong's IPO break-issue ratio did not happen overnight. Data shows that since June, the break-issue rate for Hong Kong new share subscriptions has been accelerating upward, at approximately 25% in June and 41.2% in July, before climbing further to over 60% in September. Looking at individual stocks, Maikotian plunged 42.93% on its first day of listing, becoming one of the worst-performing new listings by first-day performance this year.
Alongside the break-issues has come a sharp drop in primary market subscription enthusiasm. In the first half of the year, some Hong Kong new listings saw public offerings oversubscribed thousands of times. Among new listings since September, many have seen effective subscription multiples in the public offering tranche fall to single digits, with margin financing multiples declining in tandem, as new-share subscription funds turn more cautious. For example, Tongcheng New Materials received only 3.39 times subscription in its Hong Kong public offering and 2.75 times in the international offering; SSY Group Ltd's IPO margin financing was only 6.75 times, and it ultimately halted its offering and refunded investors five days before listing.
Beyond cooling subscriptions, the pace of new share issuance has also frequently hit the brakes. On the evening of October 20, Slender West Lake Cultural Tourism, originally scheduled to list in Hong Kong on October 23, urgently announced the withdrawal of its IPO. The company explained that after considering multiple factors (including current market conditions), it decided to delay its global offering and its proposed listing on the Main Board of the Hong Kong Stock Exchange. On October 25, Weiyi Zhizao also announced on the Hong Kong Stock Exchange that after considering multiple factors (including current market conditions), it decided to delay its global offering and its proposed listing on the Main Board. The company had previously published its prospectus on October 20 and originally planned to list on October 28.
The reporter noted that more than 10 A-share companies have terminated their Hong Kong listing plans this year. On October 14, Dongcheng Pharmaceutical said it decided to terminate the spin-off and listing of its subsidiary on the Main Board of the Hong Kong Stock Exchange. On October 13, Goertek announced the termination of the spin-off and listing of its subsidiary on the Hong Kong Stock Exchange.
Alongside the slowing listing pace, a filing "blank window" has become an even more intuitive signal. As of October 24, since the start of October, the Hong Kong Stock Exchange's Main Board and GEM have not seen any first-time filings from conventional IPO candidates — the last time such a long "blank window" occurred was in the third quarter of 2024. In October last year, 29 companies completed first-time Hong Kong IPO filings.
CITIC Securities believes that Hong Kong IPO issuance maintained high heat in the third quarter, but new-share subscription returns declined, which may be related to both rising issuance valuations and a weaker secondary market.
Multiple factors behind the IPO cooldown
The industry generally believes that this round of cooling in Hong Kong IPOs is the result of multiple factors converging. First, after the hot market in the first half of the year, new share issuance pricing and valuations have clearly risen. Although some newly issued technology-related H-shares carry large discounts to their A-share counterparts, they still broke issue on the first day of listing, reducing Hong Kong investors' tolerance for high valuations. Second, as the Hong Kong market also came under pressure, with the Hang Seng Index at one point approaching its year-to-date low, new-share subscription sentiment was further dragged down. Finally, the Hong Kong Securities and Futures Commission recently warned of suspicious subscription arrangements in certain IPOs, urging sponsors and intermediaries to be alert to warning signs, which has also made issuers and intermediaries more cautious when advancing projects, with some questionable applications delayed or withdrawn.
The Hong Kong Securities and Futures Commission said on October 13 that it had identified suspicious arrangements involving certain IPOs and was deeply concerned about them. These involved listing applicants suspected of providing undisclosed subscription funds or guaranteed returns to designated investors or persons associated with them. Such arrangements harm the integrity and soundness of the market by distorting genuine investor demand, weaken the fairness of the price discovery mechanism, and harm public investors through misleading disclosures and potential post-listing trading activities involving manipulation.
"Personally, I believe the recent cooling in Hong Kong IPOs is related to factors such as the continued weakness of the secondary market and the sharp decline in new-share subscription enthusiasm," analyzed a senior investment banking executive at a brokerage in northern China. Behind this lies not only companies' hesitation about current issuance valuations, but also their wait-and-see stance on the secondary market's capacity to absorb new shares, as well as concerns about the regulatory level.
Overall, whether looking at the break-issue rate, subscription heat, or filing pace, all point to a phased cooldown in Hong Kong IPOs. Thanks to "A-first, then-H" dual listings and the concentrated arrival of mainland leading enterprises, total Hong Kong IPO fundraising in the first three quarters of this year has already exceeded the full-year total of last year, ranking second among major global markets. Data from the Hong Kong Stock Exchange shows that in the first three quarters, the number of newly listed companies in Hong Kong reached 118, up 71% year-on-year; IPO fundraising amounted to HK$388 billion, up 106.1% year-on-year. Looking ahead to the full year, Deloitte expects Hong Kong may still record about 160 new listings for the year, raising at least HK$480 billion; KPMG Hong Kong capital markets group head Liu Dachang judges that if the market environment remains stable, full-year fundraising is expected to hit a record high and approach HK$500 billion.
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