hong kong and chinese mainland ipo markets · representing about 89% of the total proceeds raised...

Hong Kong and Chinese Mainland IPO Markets2016 Review and 2017 OutlookNational Public Offering Group, January 2017

© 2017. For more information, contact Deloitte China. 2

The global capital market, HK and Mainland's stock markets were volatile in 2016:

U.S. Federal Reserve’s decision of freezing interest rate and preview of rate hike

PBOC’s cut in banks' deposit reserve ratio by 0.5%

China’s new economic growth targets and development plans for the next five years

Improved signs in China's economy since August

Strong market expectations over the successful launch of Shenzhen-Hong Kong Stock Connect

European Central Bank’s decision to continue monetary easing policies and subsequent announcement on extension of easing policies

OPEC’s agreement on output reduction, leading to a rebound in oil price

Stable market…

Continuous rising downward pressure on China's economy

Unstable expectation over U.S. rate hike

Depreciation risk of RMB and sustained pressure on offshore RMB; pressure on Mainland’s cross-border capital outflow and measures on stricter control over capital outflow

Capital outflow from the U.K. and Europe and the pound’s plunge following Brexit decision; uncertainty to outlook of European political situation

Failure in resolving the debt default problem with rise in local debt swap

Capital drain from emerging economies into safe-haven assets, due to market uncertainties

Far beyond expectation on outcome of the U.S. presidential election

Hindrance in recovery of oil price due to huge crude oil inventories

Flu

ctu

atin

g

mar

ket


Review of IPO Market in 2016 – HK


HK’s IPO market was well performed in 2016

Highest average first-day return for IPOs since 2012

World’s largest IPO market (by proceeds)

Highest number and proceeds for IPOs at GEM since 2002

Record high number of international companies listed in HK

Highest ratio in IPOs from local companies in the past five years

Record high number of listing applications

Largest Chinese technology IPO (Meitu) after Alibaba’s listing in 2007 (by proceeds)

HK’s IPO market in 2016

World’s largest IPO (Postal Savings Bank of China)


120 new listings raised

HK$195.3 billion


HK$262.1 billion

In 2016, HK’s IPO market was slower than 2015

Both number and size of mega and large IPOs were reduced

Sizes of other IPOs were all cut

20152016

3% 25%

Source: Hong Kong Stock Exchange (HKEX), Deloitte’s analysis as at 31 December 2016; exclude proceeds raised from the exercise of over-allotment options of 4 newly listed companies on MB, which did not announce their price stabilization actions by 31 December 2016.


Overview of HK’s IPO market – 2016 Most of the top 5 IPOs were from financial service industry with total proceeds of about HK$108.9 billion, down by 11% from HK$122.3 billion of last year

2015

1. Huatai Securities Co., Ltd. – H Shares 38.8

2. GF Securities Co., Ltd. – H Shares 32.1

3. China Huarong Asset Management Co., Ltd. – H Shares 19.7

4. China Reinsurance (Group) Corporation – H Shares 16.4

5. Legend Holdings Corporation – H Shares 15.3

Issuer Proceeds (HK$ billion)

2016

1. Postal Savings Bank of China Co., Ltd. – H shares 59.2

2. China Resources Pharmaceutical Group Ltd. 15.1

3. China Zheshang Bank Co., Ltd. – H Shares 15.0

4. China Merchants Securities Co., Ltd. – H Shares 10.7

5. Everbright Securities Co., Ltd. – H Shares 8.9

Source: HKEX and Deloitte’s analysis as at 31 December 2016


7 713

37

1314 21

47

1023 18

26 15 1012 13 10 6 16

49

1824

2727 16

1619 39

1311 22

29

00 2

3

0 2 2

3

3

23

5

34 3 2 1 5

5

12

51

8 59 5

7

13

6 9

10

20

0

50

100

150

200

250

300

0

10

20

30

40

50

60

70

Pro

ceeds raisedN

o. o

f IP

Os

HK MB IPOs HK GEM IPOs IPO Proceeds (HK$ billion)

The number of IPOs (49) reached peak in Q4 2016 following a record of 52 IPOs debuted Q4 last year. The number of IPOs at GEM (20) hit record since the past quarters.

Overview of HK’s IPO market – 2016More listing applications but fewer withdrawn and transfer applications

Steep rise in number of listing applications

to HKEX in 2016

More rejected and returned listing

applications

• 226 applications for listing at the Main Board (MB) and Growth Enterprise Market (GEM) were received in 2016, representing 22% rise against 185 applications that HKEX accepted in 2015.

• Only 12 applications for a transfer of listing from GEM to MB were received, down by 33% year-on-year from 18 applications.

• Active new applications that have been accepted and processed since 1 January 2016 totaled 99, up by 38% year-on-year from 72 applications.

• In 2016, 33 applications were lapsed (i.e. granted approval in principle but not listed prior to application lapsed), 175% year-on-year rise from 12 applications.

• 13 applications were rejected, up by 44% from 9 applications during the same period of last year.

• 4 applications were withdrawn, down by 56% from 9 applications during the same period of last year.

• 7 applications were returned, up by 133% year-on-year from 3 applications during the same period of last year.

Source: HKEX, Deloitte’s analysis as at 31 December 2016; exclude proceeds raised from the exercise of over-allotment options of 4 newly listed companies on MB, which did not announce their price stabilization actions by 31 December 2016.


Overview of HK’s IPO market – 2016Ratios of new listings from HK and Mainland companies came closer

Listing P/Es were hit by volatile capital market

• 64% of IPOs were priced in P/E multiples of at least 10 times, 9 percentage points lower than 73% of last year.

• Only 28% of IPOs were priced in P/E multiples of 20 times or above, 15 percentage points lower than 43% of last year.

• 52 out of 120 IPOs were from Chinese mainland, accounting for 43% of new listings, 12 percentage points lower than 55% (68 IPOs) last year.

• IPO funds raised by Mainland companies amounted to HK$174.1 billion, representing about 89% of the total proceeds raised in the market, lower than 92% (HK$242.1 billion) of last year.

• 10 overseas companies from Singapore, Japan, South Korea and Malaysia were listed in HK in 2016 raising HK$10.8 billion, while 4 overseas companies listed in 2015 raising HK$3.6 billion, representing a 200% jump in proceeds raised.

Weight of Mainland companies dropped

further, while that of overseas companies

rose

8%

Chinese Mainland HK and Macau Overseas

Number of IPOs by Location of Issuer

3%

19%

36%

28%

14%

x < 5 times 5 times < x < 10 times10 times < x < 20 times x > 20 timesIntroduction/Loss

P/E Multiples of HK IPOs


43%

49%


-16%

-17%

-23%

76%

92%

130%

-30% 20% 70% 120%

Top 3 Best/Worst Performers of HK MB IPO

COFCO Meat

SMIT

Yadea Group

China Unienergy

Food Wise Holdings

Hang Sang (Siu Po) Int’l

-11%

-19%

-23%

1500%

1900%

2005%

-30% 970% 1970% 2970%

Top 3 Best/Worst Performers of HK GEM IPO

AL Group

China Digital Video

Luk Hing Entertainment

K W Nelson Interior Architect

Goal Forward Holdings

• Driven by strong performance of several MB IPOs, the average first-day return was +191.3% (MB: +12.5%, GEM: +494.6%), up by 23.5 percentage points from +167.8% year-on-year (MB: +5.5%, GEM: +676.5%).• The top three best IPO performers were still from GEM issuers. The highest

return was 2,005%. The return of the worst first-day performers, which came from MB and GEM, was -23%.


Overview of HK’s IPO market – 2016 Average first-day return of MB IPOs rebounded and the overall return rose by 23.5 percentage points

Anacle System


• Fuyao Glass Industry –H Shares

• GF Securities – H Shares

• HTSC – H Shares• Legend Holdings – H

Shares• China Railway Signal &

Communication – H Shares

• China Reinsurance – H Shares

• China Huarong Asset Management – H Shares

• Dali Foods• China Energy

Engineering – H Shares

• Hui Xian Real Estate Investment Trust

• Shanghai Pharmaceuticals - H Shares

• Glencore Int’l • MGM China• Samsonite Int’l S.A.• PRADA S.p.A.• Sun Art Retail Group• CITIC Securities – H

Shares• HKT Trust and HKT –

SS• Chow Tai Fook

Jewellery • New China Life

Insurance – H Shares

HK IPO’s deal size analysis – 2016Mega IPOs accounted for about 70% of MB proceeds raised in 2016; the ratio was higher than previous years

11

2 6 8 9 8

0%10%20%30%40%50%60%70%80%90%

100%

2011 2012 2013 2014 2015 2016

Deal Size of HK MB’s IPOsMega (>US$1b) Large (US$1b>x>US$0.5b) Medium (US$0.5b>x>US$0.2b) Small (<US$0.2b)

• Haitong Securities – H Shares• The People's

Insurance Company (Group) of China – H Shares

11 IPOs raised HK$207.5b


Total MB funds raised:

HK$271b

Total MB funds raised:

HK$88.9b• China Galaxy

Securities – H Shares• SINOPEC

Engineering – H Shares• China Huishan

Dairy • Huishang Bank –

H Shares• China Cinda Asset

Management – H Shares• China Everbright

Bank – H Shares

• HK Electric Investments and HK Electric Investments – SS• Harbin Bank – H

Shares• China CNR – H Shares• WH Group • CGN Power – H

Shares• BAIC Motor – H

Shares• Dalian Wanda

Commercial Properties – H Shares• Shengjing Bank – H

Shares

• China Zheshang Bank – H Shares

• BOC Aviation • Orient Securities –

H Shares• Everbright

Securities – H Shares

• Postal Savings Bank of China – H Shares

• China Merchants Securities – H Shares

• China Resources Pharmaceutical

• CSC Financial - H Shares


Total MB funds raised: HK$165.7b









The average deal size of MB has decreased by 27% to HK$880 million, while that of GEM went up by 27% from HK$80.61 million to about HK$102 million

1.1

1.01.1

1.0 1.2

0.9

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0

10

20

30

40

50

60

70

80

90

100

2011 2012 2013 2014 2015 2016

Averag

e IPO

Pro

ceedsIP

O P

roce

eds

Rai

sed

Deal Size of HK MB’s IPOs (excluding mega deals that raised at least US$1b each)

Large (US$1b>x>US$0.5b) Medium (US$0.5b>x>US$0.2b) Small (<US$0.2b) Average (HK$ billion)(HK$ billion)

HK IPO’s deal size analysis – 2016

27%


58

IP

Os •HK$

63.5 billion 4

6 I

PO

s •HK$

46.9billion 7

0IP

Os •HK$

75.8billion 8

2 I

PO

s •HK$

86.0billion 7

8IP

Os •HK$

93.7billion 6

4IP

Os •HK$

56.5billion


20%

20%

5%22%

21%

12%At Top of Range

Above Mid-Point of Range

At the Mid-Point of Range

Below Mid-Point of Range

At Bottom of Range

Fixed Price

20%

18%

8%26%

18%

10%

HK IPO’s valuation analysis - 201638% of IPOs were priced higher than the mid-point of the indicative range, 2 percentage points lower than last year

20152016

Source: HKEX, Deloitte’s analysis as at 31 December 2016.


1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

20162015

Best performed IPOs in terms of over-subscription rate

2,182x

1,837x

78% IPOs were over-subscribed.

Among the over-subscribed ones,

41% were over-subscribed by

over 20 times.

(2015: 83%)

(2015: 42%)

Hang SangSource: HKEX and Deloitte’s analysis as at 31 December 2016, include GEM IPOs that listed via offer for subscription.

IssuerOver-

subscription Rate

Hang Sang 2,182x

IBI Group 1,816x

CROSSTEC Group 1,695x

EFT Solutions 1,277x

K. H. Group 890x

Top 5 over-subscribed IPOs in 2016Analysis of HK IPO’s public offering

subscription – 2016As the market fluctuated due to various uncertainties, HK retail investors became less interested in IPO subscription

Man King Holdings

No. o

f Tim

es o

f Ove

r-sub

scrip

tion


4%

13%

12%

8%

23%

19%

19%2%

Energy & Resources

Financial Services

Health Care &Pharmaceutical

Manufacturing

Property

Consumer Business

TMT

Others

Industry distribution of HK IPOs in 2016 (by number)Consumer business and property sectors took lead followed by TMT

3%

14%

8%

6%

25%

24%

19%1%

20152016

Source: HKEX and Deloitte’s analysis as at 31 December 2016.


2%

69%

10%

1%4% 8%

6%

Energy & Resources Financial Services Health Care & Pharmaceutical Manufacturing Property Consumer Business TMT Others

4

139

21

14

19

22

27

15

0 50 100 150

Energy & Resources

Financial Services

Health Care & Pharmaceutical

Manufacturing

Property

Consumer Business

TMT

Others2%

53%

8%5%

7%

9%

10%6%

4

136

19

2

8

15

11

0

- 30 60 90 120 150

Energy & Resources

Financial Services

Health Care & Pharmaceutical

Manufacturing

Property

Consumer Business

TMT

Others

2016

0

Industry distribution of HK IPOs in 2016 (by proceeds)Funds from financial services sector took up nearly 70% of the market’s proceeds, much higher than that of last year

Financial services sector

took lead backed by IPOs including China Zheshang Bank, Bank of Tianjin, BOC Aviation, DFZQ, PSBC

Eight large IPOs including GF Securities, drove funds of

financial services sector

(HK$ billion)

(HK$ billion)

2015



Review of IPO Market in 2016 – Chinese Mainland


Review of Chinese Mainland’s IPO market in 2016

The strictest era of supervision over

reorganization and backdoor listing in

history

Slow down in developing the

registration-based regime and

Strategic Emerging Board

The first IPO that had to be delisted due to listing fraud

(Xintai Electric)

Highlights of A-share’s IPO

market

Intensive IPOs from city

commercial banks

Controversial ban in the use of insurance

capital to acquire companies (such as

the Vanke case)

The largest adjustment to the

volatile pace of IPOs in history

Leadership changes to CSRC, with Liu Shiyu serving as CSRC’s Chairman since 20 February

2016


Source: China Securities Regulatory Commission (CSRC), Deloitte’s analysis as at 31 December 2016.

Chinese Mainland’s IPO market developed steadily in 2016

2016 2015227 new

listings raised

RMB150.4billion


RMB158.6billion

4%5%

Pace and prices of new listings picked up since 2H 2016

103

46

78

89

44

86

0

40

80

120

0

20

40

60

80

100

120

Shanghai Main Board Shenzhen SME Board ChiNext

Proceed

s raisedN

o. o

f IP

Os

No. of IPOs in 2016 No. of IPOs in 2015Proceeds raised in 2016 Proceeds raised in 2015

2016 2015 2016 2015 2016 2015

(RMB billion)


2015

1. Guotai Junan Securities 30.1

2. China National Nuclear Power 13.2

3. Orient Securities 10.0

4. Dongxing Securities 4.6

5. Jiangsu Broadcasting Cable Information Network 3.3

Overview of Chinese Mainland’s IPO market – 2016 The total proceeds raised by top 5 IPOs were RMB31.7 billion, down by 48% compared with 2015

Issuer Proceeds raised (RMB billion)

2016

1. Bank of Shanghai 10.7

2. Bank of Jiangsu 7.2

3. Huaan Securities 5.1

4. Triangle Tire 4.4

5. Bank of Guiyang 4.3

Source: CSRC, Deloitte’s analysis as at 31 December 2016


Excluding 2013 when there was no IPO, proceeds raised in 2016 were at a record low since 2010. However, the funds raised in the market have picked up since 2H 2016.

10 1 6 9 11 12 9 6 5 11 8 1 0 0 0 6 115 21 35 43

1 10 9 17 2849

52 58 46 48 35 26 26 28 19 18 15 3 0 0 1813

4 1223

09 6

99

2229

25

33 30 43 4031 14

25 2622

1 00

0

24

211

23

51

4 8 911

28

30

024681012141618

0

20

40

60

80

100

120

140Shanghai MB Shenzhen SME Board ChiNext Proceeds raised (RMB billion)

Pro

ceed

s ra

ised

No

. of

IPO

sOverview of Chinese Mainland’s IPO market – 2016 IPO pace was still under control

Source: CSRC, Deloitte’s analysis as at 31 December; No. of IPOs in 2016 at SH MB: 103; SZ SME Board: 46; ChiNext: 78.

Stable IPO activities• China resumed IPOs by the end of

2015 and the IPO activities were stable in 2016.

• As at 31 December 2016, 248 of the 272 IPOs reviewed by the Public Offering Review Committee were approved to list, 4 applications were withdrawn, 18 did not pass the meetings and decisions of 2 applications were still pending.

The Public Offering Review Committee approved 38 IPOs• 681 active applications were

being processed as at 31 December 2016.

• Among them, 44 IPOs that had passed the Public Offering Review Committee’s meetings were awaiting listing.

Vast listing applications • As at 31 December 2016, 731

companies had filed applications for listing on Shanghai Main Board (MB), Shenzhen SME Board, and ChiNext. Among these applications, 50 were suspended.


Overview of Chinese Mainland’s IPO market – 2016P/E ratios and average first-day return of IPOs

Source: Deloitte’s analysis as at 31 December 2016.

High P/E issue has been resolved to a certain extent• 80% of IPOs (182) were priced in P/E multiples

between 20 to 40 times, 3 percentage points fewer than 2015.

• 17% of IPOs (38) were priced in P/E multiples between 10 to 20 times, close to that in 2015.

• 3% of IPOs (8) were priced in P/E multiples of less than 10 times, 3 percentage points increase compared with 2015, mainly including IPOs of banks.

• The highest P/E ratio in 2016 was 22.99 times. There were no significant discrepancies among the P/E multiples of the IPOs.

There were no significant disparities in first-day return of IPOs• The average first-day return of the IPOs was 44%.

As IPO issuers were required to keep their first-day returns below 44%, there was no significant differences in the first-day return among the IPOs.

• Returns from IPOs of different sectors were relatively stable, with the best performance at 44.09% and the worst performance at 43.90%.

3%17%

80%

x<10 times 10 times<x<20 times

20 times<x<40 times x>40 times


Proceeds raised by mega IPOs were far lower than last year; other than Bank of Shanghai, Bank of Jiangsu and Huaan Securities, no mega IPO raised proceeds more than RMB5 billion

Chinese Mainland IPO’s deal size analysis – 2016


Total proceeds raised:

RMB282.4b

• SINOHYDRO Corporation

• Sinovel Wind Group

• Pang Da Automobile Trade

• Founder Securities

4 IPOs raisedRMB35.1b


RMB77.8b

• Guosen Securities

1 IPO raised RMB7.0b


RMB158.6b

• Guotai Junan Securities

• China National Nuclear Power

• Orient Securities

3 IPOs raised RMB53.3b


RMB150.4b

• Bank of Shanghai

• Bank of Jiangsu• Huaan Securities

3 IPOs raised RMB23.0b

Total proceeds raised: RMB0b

No IPO activity


RMB103.4b

• China Communications Construction

1 IPO raised RMB5.0b

0%

20%

40%

60%

80%

100%

2011 2012 2013 2014 2015 2016

Deal Size of A-Share IPOsMega (>RMB5b) Large (RMB1b<x<RMB5b) Medium (RMB0.5b<x<RMB1b) Small (<RMB0.5b)

No IPO activity


0.89

0.64

0.00

0.58

0.49

0.57

0

0.2

0.4

0.6

0.8

1

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016

Deal Size of A-Share IPOs(excluding mega IPOs that raised at least RMB5 billion each)

Large (RMB1b<x<RMB5b) Medium (RMB0.5b<x<RMB1b) Small (<RMB0.5b) Average

Excluding ChiNext, the average deal sizes of both MB and SME Board rose compared with 2015: for MB, the average size was RMB990 million against RMB940 million in 2015; for SME Board, the average size was RMB490 million against RMB440 million; and for ChiNext, RMB330 million against RMB370 million.

Chinese Mainland IPO’s deal size analysis – 2016

(RMB billion)

22

4IP

Os

RMB 127.4b2

77

IPO

s

RMB 247.3b 1

53

IPO

s

RMB 98.4b

0IP

O

RMB0b 1

24

IPO

s

RMB 70.8b

21

6IP

Os

RMB 105.3b


(RMB billion)

16%


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

20162015

Ove

r-su

bsc

rip

tio

n r

ate

Best performed IPOs in terms of over-subscription rate

809x

7,299x

Chinese Mainland’s IPO subscription analysis – 2016 Following the lift in pre-payments for IPO subscriptions, the over-subscription rate rose significantly in 2016

100% IPOs were over-subscribed.

Among over-subscribed IPOs,

100% were over-subscribed by

over100 times.

(2016: 100%)

(2016: 100%)

Tanac Automation

Jizhi Mechatronic

Source: Deloitte’s analysis as at 31 December 2016

Top 5 over-subscribed IPOs in 2016

Issuer Over-subscription rate

Jizhi Mechatronic 7,299x

Lifesense 7,042x

Nasoft 7,042x

Anche Technologies 7,042x

WUTOS 6,803x


5.7%4.8%

6.1%

35.5%

0.4%13.2%

25.4%

8.8%5.0%1.4%

7.8%

42.5%

0.4%

16.0%

16.9%

10.0%

Energy & Resources

Financial Services

Healthcare &Pharmaceutical

Manufacturing

Property

Consumer business

TMT

Others

20152016

Industry distribution of Chinese Mainland’s IPOs in 2016 (by number)Manufacturing sector still took lead but with a reduced share compared to last year; TMT followed with an increased share

Source: CSRC, Deloitte’s analysis as at 31 December 2016.


3.5%

24.5%

6.1%

25.7%0.4%

12.9%

20.6%

5.3%

Energy & Resources Financial Services Healthcare & Pharmaceutical Manufacturing Property Consumer Business TMT Others

5

37

9

39

1

201

232

40

0 9 18 27 36 45

Energy & Resources

Financial Services

Healthcare & Pharmaceutical

Manufacturing

Property

Consumer Business

TMT

Others

2016

11.7%

28.2%

6.3%24.4%

0.1%

12.0%

12.0%

5.2%

18

45

10

37

0

18

15

6

0 9 18 27 36 45

Energy & Resources

Financial Services

Healthcare & Pharmaceutical

Manufacturing

Property

Consumer Business

TMT

Others

2015

Manufacturing took lead

Financial services

came first

(RMB billion)

(RMB billion)

Industry distribution of Chinese Mainland’s IPOs in 2016 (by funds)Manufacturing sector slightly outperformed financial services



As at 31 December, the number of companies pending listing review was 681, a decrease of 45 from 726 by the end of 2015. Another 50 companies had their applications suspended due to incomplete application documents. Their review will be resumed upon submission of annual audit reports of the most recent year. The IPO backlog was yet eased.

197

52 46 23

73

29 17 7

121

73 27

14 157

94 50 32

81

25

20 12

102

94

27 29

-

50

100

150

200

250

300

350

400

No. of Companies Pending for CSRC’S Listing ReviewShanghai MB Shenzhen SME Board ChiNext

Analysis of Listing Application Status of Chinese Mainland - 2016

Approved by Public Offering Review

Committee

Source: CSRC, Deloitte’s analysis as at 31 December 2016; another 2 companies had their review decision pending. 50 applications suspended due to incomplete application documents and their review will be resumed upon submission of the annual audit report of the most recent year.

20152016 20152016 20152016 20152016

2016 2015

Submitted to Public Offering Review Committee for discussion withdecisions pending

ChiNext: 1SZ SME Board: 1

SH MB: 1ChiNext: 1

SZ SME Board: 1

Responded to CSRC’s enquires Pre-disclosureUnder initial

review


Overview of Chinese Mainland’s IPO market in 2016 –key reasons for IPO rejection or suspension

Heavy reliance on related companies

Controversies or potential disputes

over ownership of patent

technologies

Doubts over sustainable profitability

Drastic changes to operation

models

Potential negative impact from unstably

performed subsidiaries on

issuers

Significant uncertainties in

service or product markets

Frequent changes in number of

dealerships during issuance

period

Business compliance

Violation of laws and

regulations during

declaration period


Profit plunge or loss during reporting period

0201 Abnormal changes in

reporting items and without any appropriate reasons04

030506

No response to questions raised in review process

Expiration of financial materials three months after due to overdue update ofapplication materials

Adjustments to operation strategy and listing plan

Unresolved compliance issues affecting issuance conditions

Overview of Chinese Mainland’s IPO market in 2016 – key reasons for termination of IPO review


Review of IPO Market in 2016 - Global


74

82

101

117

195

0 30 60 90 120 150 180 210

NASDAQ

Tokyo Stock Exchange

New York Stock Exchange

Shanghai Stock Exchange

HK Stock Exchange

HK was benefited from a number of large Chinese financial IPOs amid slowdown at other overseas stock exchanges due to uncertain economic outlook of numerous countries and blow to IPO activities as a result of the uncertain U.S. presidential election. HK Stock Exchange, therefore, came first in the global IPO market . New York Stock Exchange claimed the third place backed by some large IPOs. Shanghai Stock Exchange climbed to the second place with the support of listings of some large banks. Shenzhen Stock Exchange was ranked the seven, dropping out of the top five rank due to fewer IPOs.

HK continued to lead global IPO market in 2016

(HK$ billion)

IPO Proceeds Raised by Key Global Stock Exchanges in 2016

Source: HKEX, New York Stock Exchange, CSRC, Tokyo Stock Exchange, NASDAQ, Bloomberg and Deloitte’s as at 31 December 2016; and include proceeds raised from the listings of real estate investment trusts but exclude proceeds from close-end investment companies and funds and special purpose acquisition companies

120 IPOs

103 IPOs

35 IPOs

97 IPOs

90 IPOs


Outlook of IPO Market in 2017 – HK


2011Q3

2011Q4

2012Q1

2012Q2

2012Q3

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

HK MB 9 10 10 9 9 11 11 10 11 11 10 11 11 11 11 12 9 10 10 10 11 11HK GEM 20 22 18 17 17 18 27 34 41 49 12 11 12 12 61 85 67 77 56 59 68 71SH A-Share 14 13 14 12 11 12 12 10 12 11 11 10 11 16 19 21 15 18 15 14 16 16SZ A-Share 27 23 23 23 21 22 24 23 28 28 26 26 32 35 46 55 39 53 40 41 41 42

0

10

20

30

40

50

60

70

80

90A

vera

ge

P/E

Rat

io

Valuations of both HK’s MB and A-share in Q4 2016 were similar to Q3 2016


P中


37%

4%10%15%

11%

19%

1%3%18%

12%

8%

27%

10%

19%

6%

ConsumerBusinessEnergy &ResourcesFinancialServicesProperty

TMT

Manufacturing

Healthcare &PharmaceuticalOthers

Industry analysis of active HK IPO applications

Source: HKEX and Deloitte’s analysis as at 31 December 2016.

Application proofs: 51 Application proofs: 73

Consumer business outraced by property sector on MB, but took lead at GEM

MB GEM


Over 600 companies were pending for IPO approval,

which will take two to three years to get fully listed.

Consultations on decision-making and governance structure for listing regulation and GEM reform, as well as the study of the launch of the Third Board will help bolster HK’s position as an international

financial center.

HK IPO market still has its advantages

Mainland regulators focus on stabilizing the A-share market and tightening up

IPO approval and backdoor listing. The new

registration-based share issuance regime was not launched over the year.

The return listings of HK-listed Mainland

companies on the A-share market via

privatization won't emerge as a trend

due to tightened IPO approval and

backdoor listing on the Mainland.

In the face of an upsurge of return listings of China concept stocks from

the U.S. via privatization and regulators’ focus on stabilizing the A-share market, few China concept stocks successfully returned to list on the A-share market

after privatization.

Although Singapore Exchange is planning to allow listings of companies with

different shareholding structure, few companies that adopt dual shareholding

structure meet the existing listing requirements. Furthermore, the turnover

in Singapore stock market is lower compared with HK. Therefore, the

proposed arrangement is expected to have limited impact on HK IPO market.

Ongoing work on launch of freely

circulated H-shares

Boost promotion of HK Stock Connect to support the Shenzhen-HK Stock

Connect, as well as the participation of insurance funds in Shanghai-HK Stock Connect pilot to improve Shanghai-HK

Stock Connect

HK continues to be one of the popular listing markets for SMEs

in Asia Pacific, especially for those run by Chinese or with business

strategies for China.

Encourage more capital to flow in and

shore in HK by developing more

diversified products and services, so as to

attract SOEs and Mainland financial institutions to go

listing in HK

A platform assisting Mainland companies to go international

Asia’s Mutual Market

A corporate treasury center for

multinational and Chinese companies

An offshorewealth

management center

of China


Health care &pharmaceutical companies

Financial service institutions

TMT companies

International companies

Aviation service companies

Highlights of HK’s IPO

market in 2017

Most of the IPO proceeds raised in HK 2017 will still come from Mainland financial service institutions

Enhance market advantages and increase required reserve ratio to

SMEs from other Asian countries hope to raise

They raise funds to boost competitiveness.

Increased attention to technology stocks following the launch of Shenzhen-HK Stock Connect and the emergence of IPOs from the new

Benefit from the central government’s reform of healthcare, medical

insurance, and pharmaceutical industry

economy will help such businesses

proceeds via listing in HK by leveragingon its active and international investor

base and position as an Asia’s

cope with further financialsystem reforms and

financial innovations

to go public.

Mutual Market.


Performance of HK’s IPO market to turn relatively brighter 2H 2017 after multiple uncertainties in peripheral markets dissipate

UK

ChinaEurope

U.S.

• The Fed is expected to raise the interest rate thrice in 2017.

• Trump will assume the presidency in January 2017. The market expects the economic growth to rise from his stimulus policies.

• The market pays close attention to Sino-US political and trade relations because of several recent events.

• The UK will commence the Brexit procedures and negotiations before end of March 2017. Sterling’s exchange rate is expected to come under pressure again and affect market confidence in UK's economic outlook.

• The European Central Bank decided to extend its bond-buying timetable and reduce the buying scale in December 2016.

• Growth in the Eurozone is expected to continue to come under the risk of Euexit.

• Italy is to elect a new premier to form a new government following the referendum defeat and resignation of the current Premier.

• As the current French President announced to give up reappointment, a presidential election will be held in April to May 2017.

• Germany will elect a new president in February 2017, and then hold a parliamentary election. The current Premier has yet indicated whether to run for another term.

• Netherland will have a parliamentary election in March 2017.

HK

• In 2017, the 19th NPC will be held, China's 13th Five-Year Plan will be launched and the supply-side structural reform will be deepened.

• China will deepen the supply-side structural reform as a priority by reducing its overcapacity, inventory, leverage and cost, improving weak links, and accelerating reforms of SOEs, tax, finance, and social insurance.

• Making progress while ensuring stability" has become a key principle of state governance.

• It is expected to see four to five mega IPOs, mainly are made by Chinese financial service institutions.

• A clearer direction on consultation and listing structure reform of GEM and the Third Board may be indicated in 2017.

About120-130 IPOs in HK

Raising about HK$160-180 billion

(0-↑8%)

(↓8%-↓18%)


Outlook of IPO Market in 2017 – Chinese Mainland


Outlook of Chinese Mainland’s IPO market

New round of U.S. interest rate hike cycle and policies

set by the new U.S. admin.

Volatile global economic situation

IPO poverty alleviation

policy

Second review of Securities Law and progress of

launch of registration-based issuance regime

Recovery of China’s

economy

Strengthened market

supervision

Major economic, political and market

factors


Outlook for Chinese Mainland’s IPO market – events that may impact the capital market in 2017

The revised Securities Law sets principles for the reform of registration-based issuance regime. The second review will be postponed to no earlier than April 2017 as the market expects.

The State Council announces to give priorities to IPO applications of eligible companies in Northeast China. Later, the CSRC will issue related supporting policies.

Further strengthening of market supervision

Opinions of the CSRC on Employing Capital Market to Serve Poverty Alleviation Strategy was issued on 9 September 2016. The policy of “regulators conducting review upon receipt and companies going listed upon approval” is applied to IPO companies from the poverty-stricken areas in the country.

China's Central Economic Work Conference sets the economic priorities for 2017: keep prudent monetary policies, maintain stable exchange rates, prevent and control financial risks, stabilize the confidence of private companies, cut overcapacity, inventory and leverage, promote sound development of property market, reform state-owned enterprises and assets, and deepen financial regulation system reform.

The launch of Shenzhen-HK Stock Connect is expected to gradually attract foreign investment institutions to invest in the A-share market more frequently. In the long run, it will help inspire market sentiment. Meanwhile, Shenzhen-HK Stock Connect paves a "highway" for Mainland investors to invest in HK stock market. The valuation gap between the Mainland and HK is expected to be further narrowed.


Outlook for Chinese Mainland’s IPO market – industry distribution of upcoming IPOs (by no. of companies)As at 31 December 2016, 44 companies that passed meetings of the Public Offering Review Committee have yet offered. Traditional and high-end manufacturers (41%) and TMT firms (25%) took up the two largest shares.

1811

7 4 40

10

20

30

40

50

60

70

80

Traditional and high-end manufacturing

industry

Technology, mediaand

telecommunicationsindustry

Retail and consumerbusiness

Energy and resourcesefficiency industry

Life science andhealthcare industry

No. of companies that were approved by Public Offering Review Committee but yet offered

(Unit)



In 2017, the A-share market will be able to absorb all companies that were allowed to list by the Public Offering Review Committee

Source: CSRC, Deloitte’s analysis as at 31 December 2016*Compared with the data of 2016

Majority of the IPOs will

The Securities Law may be revised during the “Two Sessions” in 2017

44 companies that were approved to list by the Public Offering Review Committee were pending to be offered. Based on the pace of

RMB250-280billion

About380-420companies are expected to complete IPOs, raising approximately

Proceeds:66-86%

No. of IPOs*:67-85%

IPO approval and issuance in 2H 2016, these companies are expected to complete listing

still come from small-and-medium-sized companies from the manufacturing and technology sectors.

to further clarify the reform of registration-based issuance regime. But the new regime is

expected unlikely to be introduced in 2017.by January 2017.


Deloitte China’s IPO Service Credentials

IPO Proceeds

Our Strong Leadership in IPO Services

44©2017. For information, contact Deloitte China.

No. of IPOs

26%

Hong Kong IPO Services(2009-2016)

No. of IPOs

36%

U.S. IPO Services for Chinese Firms(2006-2016)

Total: 629 Total: 148Total: HK$1.89 trillion

Source of Hong Kong market statistics: HKEX, Deloitte’s analysis, as at 31 December 2016; based on the accumulated number of IPOs and proceeds raised on the MB since 2009 ; exclude proceeds raised from the exercise of over-allotment options of 4 newly listed companies on MB, which did not announce their price stabilization actions by 31 December 2016.

Source of U.S. market statistics: NYSE, NASDAQ, Deloitte’s analysis, as at 31 December 2016; based on the accumulated number of U.S. IPOs by Chinese companies since 2006.

32%

©2017. For information, contact Deloitte China. 45

China Art Financial Holdings Ltd.

It is an art pawn loan service provider in China.

Guangdong Kanghua Healthcare Co., Ltd.

It is the largest private for-profit general hospital in China.

Nanfang Communication Holdings Ltd.

It is an optical fibre cable supplier headquartered in Jiangsu province.

COFCO Meat Holdings Ltd.

It is a rapidly growing pork company in China.

Deloitte is their reporting accountantMajor deals completed in HK in 2016

China Resources Pharmaceutical Group Ltd.

It is a leading integrated pharmaceutical company in China.

DFZQ

It is a leading and fast-growing capital markets service provider in China with distinguished investment expertise.


China Development Bank Financial Leasing Co., Ltd.

It is the sole leasing business platform and one of the key strategic business segmentsof CDB.


Smart-Core Cloud Group Ltd.

It is a leading distributor of IC and other electronic components based in the PRCregion.

Plover Bay Technologies Ltd.

It is a well-established SD-WAN router vendor focusing on the design, development,marketing and sale of its products and services.

Star Properties Group (Cayman Islands) Ltd.

It is a property developer principally engaging in property development of industrial buildingsfor sale or rental in HK.

China Unienergy Group Ltd.

It is a producer of anthracite coal based in the Guizhou province, the PRC.

Lifestyle China Group Ltd.

It is an established operator of department stores based in the PRC.



Huajin International Holdings Ltd.

It is a leading cold-rolled carbon steel processor in Guangdong Province, the PRC.

Get Nice Financial Group Ltd.

It is a well-established financial services provider in HK’s securities industry.

AP Rentals Holdings Ltd.

It is a leading equipment rental service company in HK.

Bank of Tianjin

It is the only city commercial bank headquartered in Tianjin, one of the four municipalitiesin China.

Jiayuan International Group Ltd.

It is an established property developer of large-scale residential complex projects and integratedcommercial complex projects in Jiangsu province, the PRC.

China Rongzhong Financial Holdings Company Ltd.

It is a leading finance leasing company in Hubei province with the longestoperating history among Hubei-based finance leasing companies.



Perfect Group International Holdings Ltd.

It is one of the top fine jewellery manufacturers and wholesalers with approximately 30 years of history in HK.

NNK Group Ltd.

It is a leading specialized online transaction service provider in the mobile top-up service industry in China.

Hypebeast Ltd.

Headquartered in HK, it is a digital media company primarily providing advertising services to brand owners and advertising agencies on our digital mediaplatforms; and the sale of third-party branded clothing, shoes and accessories on its e-commerce platform.

Super Strong Holdings Ltd.

As a contractor in HK’s construction industry, it is principally engaged in generalbuilding works and specialist building works in HK.

Keen Ocean International Holding Ltd.

It is principally engaging in the design, development and sale of power supply products; and other electronic parts and components.

Hi-Level Technology Holdings Ltd.

It is an independent design house (IDH), primarily selling electroniccomponents and providing IDH Services to ODMs and OBMsof consumer electronics products.


China Industrial Securities International Financial Group Ltd.

It is a full-service securities group based in HK.

EFT Solutions Holdings Ltd.

It is a leading EFT-POS solution provider in HK.


Ever Smart International Holdings Ltd.

It provides footwear design and development, production management and logistics management service.

MediNet Group Ltd.

It provides corporate medical and dental solutions and different combinations of medical and/or dental services.

Classified Group (Holdings) Ltd.

It is a HK-based food and beverage group with a primary focus on offering westerncuisine in both casual dining and full service environment.

Dining Concepts Holdings Ltd.

It is a restaurant group in HK serving a variety of cuisines, targeting different customer segments with mid to high spending power.


ChinaMolybdenumCompany Ltd.

The groupspecializes inmining, smeltingand processing ofmolybdenum andtungsten.

Jiangsu WanlinModern Logistics Co., Ltd.

It is a logistics providerthat focuses on woods imports.

Happigo Home Shopping Co., Ltd.

It is a leading company of new generation of home television shopping.

Neway Valve(Suzhou) CompanyLtd.

It is the largest andworld-renownedindustrial valvemanufacturer inChina.

Jiangsu Wujiang Rural Commercial Bank Co., Ltd.

It is a leading rural commercial bank in Jiangsu province.

Deloitte is their reporting accountantRecently completed A-share listings

Xinhua Winshare Publishing and Media Company Ltd.

It is an operational entity in the cultural industry.


Contacts

National Public Offering Group

Edward AuCo-LeaderTel：+852 2852 1266/ +86 755 3353 8075Fax：+852 2815 8476/ +86 755 8246 3186 Email：[email protected]

Dick KayCo-LeaderTel：+86 21 6141 1838Fax：+86 21 6335 0177Email：[email protected]

Jay HarrisonU.S. Capital Market LeaderTel：+852 2852 6337Fax：+852 2527 3036Email：[email protected]

Anthony WuChina’s A-Share Market Capital LeaderTel：+86 21 6141 1808Fax: +86 21 6335 0177/0377Email：[email protected]

Taylor LamLeader of Northern China RegionTel：+86 10 8520 7126 Fax：+86 10 85207494Email：[email protected]

Ray YimLeader of Western China RegionTel：+86 23 8823 1259Fax: +86 23 8823 1259Email：[email protected]

Bonita ChanProgram Senior ManagerTel：+852 2852 1679Fax：+852 2529 3072Email：[email protected]

mailto:[email protected]







Our China Practice• Over 10,000 people in 19 offices • Serving one-fifth of all companies listed on the

Hong Kong Stock Exchange (HKEX)• Leading position in public offering services in

key capital markets and was the reporting accountant for the global largest IPOs in both 2010 (Agriculture Bank of China) and 2011 (Glencore International Plc)

• Advising the Ministry of Finance in the Chinese Mainland on the development of international accounting standards and tax systems since 1993

• Leading the HK IPO services (in terms of accumulated no. of IPOs and proceeds raised on the Main Board since 2009)

• Leading the U.S. IPO services (in terms of accumulated no. of IPOs for Chinese companies since 2006)

We have achieved many industry firsts:• The first to pioneer the listing of RMB-

denominated REIT (Hui Xian REIT)• The first to bridge the gap between Japanese

Generally Accepted Accounting Principles and the IFRS and assist on HKEX (SBI Holdings, Inc.)

• The first fixed single investment trust from Hong Kong’s hospitality industry in HK (Langham Hospitality Investments)

• The first state-owned distressed asset management company in HK (China Cinda)

• The first Mainland-based largest death care service provider in HK (Fu Shou Yuan)

• The first Chinese private hospital operator in HK (Phoenix Healthcare)

• The first nuclear power producer in China in HK (CGN Power)

• Asia’s largest integrated death care service provider in HK (Nirvana Asia)

• The first to list a Chinese fintech company at the New York Stock Exchange (Yirendai)

• The first Chinese express company listed in the U.S. (ZTO Express)

Our China Practice• Over 10,000 people in 19 offices • Serving one-fifth of all companies listed on the

Hong Kong Stock Exchange (HKEX)• Leading position in public offering services in

key capital markets and was the reporting accountant for the global largest IPOs in both 2010 (Agriculture Bank of China) and 2011 (Glencore International Plc)

• Advising the Ministry of Finance in the Chinese Mainland on the development of international accounting standards and tax systems since 1993

• Leading the HK IPO services (in terms of accumulated no. of IPOs and proceeds raised on the Main Board since 2009)

• Leading the U.S. IPO services (in terms of accumulated no. of IPOs for Chinese companies since 2006)

We have achieved many industry firsts:• The first to pioneer the listing of RMB-

denominated REIT (Hui Xian REIT)• The first to bridge the gap between Japanese

Generally Accepted Accounting Principles and the IFRS and assist on HKEX (SBI Holdings, Inc.)

• The first fixed single investment trust from Hong Kong’s hospitality industry in HK (Langham Hospitality Investments)

• The first state-owned distressed asset management company in HK (China Cinda)

• The first Mainland-based largest death care service provider in HK (Fu Shou Yuan)

• The first Chinese private hospital operator in HK (Phoenix Healthcare)

• The first nuclear power producer in China in HK (CGN Power)

• Asia’s largest integrated death care service provider in HK (Nirvana Asia)

• The first to list a Chinese fintech company at the New York Stock Exchange (Yirendai)

• The first Chinese express company listed in the U.S. (ZTO Express)

Deloitte China National Public Offering GroupYour Winning Team for Listing in Capital Markets

Deloitte offices

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Deloitte China at a Glance

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About Deloitte ChinaThe Deloitte brand first came to China in 1917 when a Deloitte office was opened in Shanghai. Now the Deloitte China network of firms, backed by the global Deloitte network, deliver a full range of audit, consulting, financial advisory, risk advisory and tax services to local, multinational and growth enterprise clients in China. We have considerable experience in China and have been a significant contributor to the development of China's accounting standards, taxation system and local professional accountants. To learn more about how Deloitte makes an impact that matters in the China marketplace, please connect with our Deloitte China social media platforms via www2.deloitte.com/cn/en/social-media.

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© 2017. For information, contact Deloitte China.

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hong kong and chinese mainland ipo markets · representing about 89% of the total proceeds raised...

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