Chinese autonomous driving company WeRide listed on Nasdaq on Friday, October 25, 2024.
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BEIJING – Chinese initial public offerings in the United States and Hong Kong are likely to increase next year, analysts say, as some high-profile IPOs outside the mainland this year fuel investor optimism about profitable exits.
Chinese autonomous driving company WeRide was listed on the Nasdaq on Friday and shares rose nearly 6.8%. Earlier this month, Chinese robotaxi operator Pony.ai also filed paperwork to list on Nasdaq. Both companies have been aiming to go public for a long time.
Since Didi's IPO in summer 2021, few large China-based companies have listed in New York, which has increased scrutiny of such IPOs by U.S. and Chinese regulators. The Chinese ride-hailing company was forced to temporarily suspend new user registrations and was delisted in less than a year.
US and Chinese authorities have now clarified the process for the IPO of a China-based company in New York. But geopolitics and market changes have significantly reduced U.S. IPOs by Chinese companies.
“After a few weak years, we generally expect the IPO market to revive in 2025, supported by interest rate cuts and (to some extent) the conclusion of the US presidential election,” said Marcia Ellis, global co-chair Hong Kong-based Morrison Foerster, head of its private equity practice, said in an email.
“While the market perceives the US-China regulatory issues as problematic, many of the issues underlying that perception have been resolved,” she said.
“Chinese companies are increasingly interested in listing in Hong Kong or New York because of the difficulty of listing in mainland China and because shareholders are under pressure to achieve a quick exit.”
As many as 42 companies have listed on the Hong Kong Stock Exchange this year, and 96 IPO applications for listing were pending or in progress as of September 30, according to the exchange's website.
Last week, Horizon Robotics – a Chinese developer of artificial intelligence and car chips – and a state-owned bottled water company CR drinks went public in Hong Kong.
According to Renaissance Capital, which tracks global IPOs, the two IPOs were the largest IPOs of the year when excluding listings of companies that also operate on the mainland. The company noted that Chinese delivery giant SF Express is planning an IPO in Hong Kong next month, while Chinese automaker Chery is targeting an IPO next year.
Still, the overall pace of IPOs in Hong Kong this year is slightly slower than expected, said George Chan, global IPO head at EY, in an interview with CNBC earlier this month.
He said the fourth quarter is generally not a good period for public listings and expected most companies to wait until at least February. In his conversations with early-stage investors, “they are very optimistic about next year” and preparing companies for IPOs, Chan said.
The planned IPOs are typically life sciences, technology or consumer companies, he said.
Hong Kong, then New York
Investor sentiment towards Chinese stocks has improved in recent weeks thanks to high-profile economic announcements. Lower interest rates also make stocks more attractive than bonds. The Hang Seng Index is up over 20% so far this year after four straight years of declines.
Many Chinese companies listed in Hong Kong also see it as a way to test investor appetite for an IPO in another country, said Reuben Lai, vice president of Greater China private equity at Preqin.
“Geopolitical tensions make Hong Kong a preferred market,” Ellis said, “but the depth and breadth of U.S. capital markets still cause many companies to seriously consider New York, particularly those focused on advanced technology and not yet are profitable, which is sometimes the case.” that their stock stories will be better received by U.S. investors.”
Just over half of IPOs on U.S. exchanges since 2023 have come from foreign-based companies, a 20-year high, according to EY.
Chinese electric car company backed by Geely Zeekr and Chinese owned Amer Sports Both listed in the US earlier this year, according to EY's list of top cross-border IPOs.
Chinese electric truck maker Windrose said it aims to go public in the US in the first half of 2025, with a dual listing in Europe later this year. The company, which aims to deliver 10,000 trucks by 2027, said on Sunday it had moved its global headquarters to Belgium.
A rebound in Chinese IPOs in the US and Hong Kong may help funds cash out on their early-stage investments in startups. The lack of IPOs had reduced the incentive to fund startups.
Now investors are looking to China again after recently pouring capital into India and the Middle East, Preqin's Lai said. “I definitely see greater potential in China from now on, be it in terms of repatriation, the valuation of companies or the exit environment.” [or] Performance of the funds.”
Even though the recovery in investor activity is nowhere near the level of the last two years, there is something to be said for the nascent recovery Investing in consumer goods such as milk tea and supermarkets, Lai said.