IPOs expected to remain weak in Q4, says Deloitte

Executives of CITIC Heavy Industries Co celebrate the company's listing on the Shanghai stock exchange in July. The third-quarter performance of the A-share market was the weakest since 2009, according to a Deloitte report. [Photo/China Daily]

Report cites tough global economy, tight credit, poor earnings as causes

IPO activities in the A-share market are likely to remain anemic in the fourth quarter after a slump in the first three quarters, which saw a nearly 60 percent decline in fresh capital raised, according to a report released by Deloitte in Hong Kong on Wednesday.

Only 153 companies were newly listed on the A-share market during the first 10 months of the year, down 37 percent from 243 over the same period a year earlier.

Total proceeds raised fell 59 percent to 103.4 billion yuan ($16.6 billion) during the 10 months from 249.5 billion yuan last year.

The report also noted that the third-quarter performance of the A-share market was also the weakest one since 2009.

A significant slowdown of listing application review was observed since May 2012, with no offering review meeting held in August, andone each in September and October, according to Deloitte, which added that market confidence was "chilled" as the indices plunged this year.

The Shanghai Composite Index, which tracks trading of all A shares and B shares on the Shanghai Stock Exchange, closed at 2068.88 on Wednesday, having lost nearly 400 points or 16.2 percent since the beginning of the year.

It fell below 2000 during trading on Sept 26 and was close to the January 2009 level, in comparison to its record high of 6,092.06 registered on Oct 16, 2007.

Not only were fund-raising activities muted, the deal size of most listings shrank with the six largest ones raising a total of 16.6 billion yuan, accounting for merely 16 percent of the total funds it raised.

Only one listing in Shanghai has raised more than 5 billion yuan this year, in comparison with four deals during the first 10 months last year, and nine and three listings registered over the same period of 2010 and 2009, respectively, said Deloitte.

The international accounting firm expected the A-share market to remain challenging this quarter as market transformation, tight liquidity and weak corporate earnings will continue to stem IPO activities on the mainland.

Although 91 companies so far have obtained listing approvals, Deloitte expects "only a small fraction of them will proceed with their listings plans" due to the dismal market sentiment.

It forecast a total of 170 companies would proceed with listings in Shanghai by the end of the year, down 40 percent from the 281 in 2011. Total proceeds are estimated to reach 120 to 140 billion yuan this year, down 50 to 57 percent over 2011's 282.4 billion yuan.

Hong Kong, which has led the global IPO market for the past three years, only raised a total of HK$48.9 billion ($6.3 billion) in the first 10 months, down 78 percent from last year.

The city was ranked in sixth place globally in terms of funds raised, trailing the two largest stock exchanges in the US, Japan, Shenzhen, Malaysia, and one spot ahead of Shanghai, according to Deloitte.

Hong Kong posted the worst 10-month performance since 2004 this year as the market choppiness stymied appetite of both corporate and individual investors.

Listing applications received by the city's stock exchange slumped 51 percent year-on-year, while lapsed cases, rejection and withdrawal of listing applications are at record high this year since 2004.

Chinese mainland companies remained dominant in "all respects" of the IPO markets in Hong Kong, with 33 out of the 51 IPO deals in the first 10 months being from the mainland, up from 61 percent to 65 percent over last year, according to Deloitte.

Although Deloitte expected Hong Kong's IPO market to rebound on optimistic growth signs on the mainland as well as in the US, Alvin Chung, a Hong Kong-based analyst with Prudential Brokerage, said the local market is unlikely to duplicate its success in the near future.

"Given that most major mainland companies have completed their listings in Hong Kong over the years, the upcoming smaller deals are unlikely to draw much attention from the local investors given the current lackluster economic environment," Chung told China Daily in a telephone interview.

Deloitte expects a total of 65 companies to be listed in Hong Kong by the end of 2012 and to raise about HK$70 billion to HK$90 billion, significant decreases of 28 percent and 67 to 74 percent, respectively, over last year.

litao@chinadailyhk.com