City's revised listing rules, slowing of approvals in mainland behind shift

Chinese mainland technology, media and telecommunications sector's IPOs in Hong Kong are expected to reach a peak in the second half of the year, according to accounting firm PricewaterhouseCoopers.

The number of Chinese mainland TMT industry IPOs reached 26 in the first half of 2018, down 47 percent from the second half of 2017. The total proceeds amounted to 57.8 billion yuan ($8.4 billion), up 15 percent from the second half of 2017.

The three largest TMT listings in the first half of this year were Foxconn Industrial Internet Co Ltd, which was listed in the second quarter, with proceeds of 27.1 billion yuan, iQiyi Inc, which was listed in the first quarter, garnering 14.2 billion yuan, and Bilibili, which was listed in the first quarter of 2018, generating 3 billion yuan, according to PwC.

"The Chinese mainland slowed approvals of IPOs in the first half of the year. At the same time, Hong Kong unveiled revised listing rules, which attracted more TMT IPOs in the first half," said Wilson Chow, leader of Chinese mainland and Hong Kong TMT under PwC global.

Among the 26 mainland TMT companies' IPOs in the first half, 12 companies chose to list in Hong Kong and overseas, accounting for 46 percent of the total.

An additional 31 percent of companies listed on the Growth Enterprises Market Board in Shenzhen, while 15 percent listed on the Main Board, and 8 percent on the Small and Medium Enterprises Board in Shenzhen.

The PwC report also showed that there were 12 IPOs in the hardware and equipment sector, accounting for 46 percent of the total. The software and service sector posted 14 IPOs, accounting for the remaining 54 percent.

The average price-to-earnings ratio of A-share listed TMT companies has continued a downward trajectory in recent years. As of June 30, 2018, the average price-to-earnings ratio of A-share TMT companies was 42, compared with 54 as of June 30, 2017 and 100 in 2015.

Chow said: "We are seeing an abundance of IPOs in Hong Kong this year. Looking ahead, there is an expectation for TMT IPOs in Hong Kong to reach a peak in the second half of the year. Meanwhile, Sino-US trade frictions could fuel uncertainties in the IPO issuance and valuation of TMT companies."

In July, Xiaomi Corp, the world's fourth-largest smartphone maker by shipments, went public with a dual-class shares structure, which allows for weighted voting rights in Hong Kong's stock market.

Telecom company China Tower's Hong Kong debut on Aug 8 was the world's biggest stock listing since Postal Savings Bank of China nearly two years ago. China Tower raised $6.9 billion from investors, valuing it at nearly $28 billion.