The recent trend of A-share companies pursuing dual listings in Hong Kong has been taking the market by storm, with firms like Maiwei Biotech leading this movement. On December 15, Maiwei Biotech announced intentions to issue H-shares and list on the main board of the Hong Kong Stock Exchange. This decision is poised to take place at a strategically favorable moment during the validity period of the shareholder resolution.
This latest endeavor isn’t an isolated event. As the fervor for A+H listings heats up, other major players have joined the fray. Three other A-share listed companies—Sanhua Intelligent Controls, Haitian Flavoring and Food, and Heng Rui Medicine—have also declared their intentions to list in Hong Kong recently. Over the course of this year, a total of 19 companies have been reported as planning to either wholly or partially spin off subsidiaries for a Hong Kong listing.
What sets this year's A-share companies apart is their relatively large market capitalization. Notably, five of these companies boast market values exceeding 100 billion yuan. This influx of significant corporations toward the Hong Kong market marks a noticeable shift when compared to previous years, as they seek greater expansion opportunities.
So why has the interest in A+H listings soared to new heights? A critical analysis reveals that an essential driving force behind this trend is the pursuit of an international business footprint and a necessity for increased capital influx. Additionally, recent policy support has played a substantial role in rejuvenating the Hong Kong IPO market, luring more A-share firms to make the cross-market leap.
The "A+H" listing frenzy is not a fleeting phenomenon. This year has seen an uptick in what is colloquially termed the 'A-share content' in the Hong Kong market. Initial statistics suggest that in 2023 alone, 19 firms, including the likes of Sanhua Intelligent Controls, Haitian Flavoring and Food, and Heng Rui Medicine, are currently in the plans to execute a complete or modified subsidiary listing in Hong Kong.
Many of these companies have made tangible progress in their intent to list. Specifically, Sanhua Intelligent Controls, Haitian Flavoring and Food, Heng Rui Medicine, among others, have formally announced plans to issue H-shares. In an impressive display of ambition, logistics giant SF Holdings and technology leader Midea Group have already successfully listed on the Hong Kong Stock Exchange, a feat accomplished with only one A-share company managing to do so in the same period last year.
When examining the prospective companies, it’s clear that they not only seek to expand their market reach but also aim to establish their dominance. For instance, Midea Group, the household appliances titan, has a market value of 567.2 billion yuan. It debuted on the Hong Kong Stock Exchange on September 17, with an impressive IPO that sold 566 million H-shares, raising over 30 billion HKD and marking the largest IPO in the Hong Kong market over the past three years.
Likewise, logistics powerhouse SF Holdings made its Hong Kong debut on November 19, planning to issue 170 million H-shares with expected proceeds of around 56.61 billion HKD. These ambitious moves demonstrate a clear trend of large, established companies seeking IPO opportunities to capitalize on their growth trajectories.
Interestingly, the route to listing taken by A+H companies varies. While several have opted for a full Hong Kong listing, others are choosing to spin off their subsidiaries. For example, Goertek disclosed on September 13 its plans to spin off Goertek Microelectronics for a Hong Kong IPO, focusing on its MEMS device production and sales division.
Contrasting with Goertek's strategy, Nanshan Aluminum announced its decision at the end of September to spin off part of its international operations, specifically its subsidiary engaged in alumina production in Southeast Asia. This illustrates the different strategic pathways companies are leveraging to optimize their listings.
Why exactly are A+H listings gaining this increased traction? A review of various IPO announcements indicates a common theme: the desire for expanded international business horizons. For instance, Sanhua Intelligent Controls highlighted in its December 13 report that it aims to further bolster its international strategy and enhance its global competitiveness through the H-share issuance.
Moreover, Haitian Flavoring and Food similarly revealed that pursuing a Hong Kong listing aligns with its aim to advance a global strategy, seeking to elevate its international brand image alongside competitive edge.
When inspecting the utilization of funds raised from such IPO ventures, a significant portion is earmarked for international business expansion. Midea Group stated that its funds would focus on extending overseas operations, global R&D investment, modernization of its smart manufacturing framework, and bolstering sales and distribution channels worldwide. Furthermore, Junda Co. indicated that the proceeds from its Hong Kong IPO will further its efficient battery manufacturing capabilities abroad.
Insights from market analysts suggest that the surge in mainland companies opting for Hong Kong listings is often strategically aligned with their global business expansion plans. The Hong Kong market, teeming with international investors, provides a conducive environment for cross-border capital collection and deployment. Although the valuations in the Hong Kong market may currently appear lower, the predominance of institutional investors promotes a longer-term investment view, contributing to a more stable valuation environment.
Additionally, regulatory policies are bolstering this trend. Earlier in April, the local government rolled out five measures aimed at facilitating capital market collaboration with Hong Kong, supporting leading mainland enterprises in their listing pursuits. Further enhancements came on October 18 when the Hong Kong Stock Exchange and the Hong Kong Securities Regulatory Commission announced an expedited review process for A-share companies with market caps of over 10 billion yuan, ensuring a more predictable timeline for potential listings.
The cumulative effect of these regulatory adjustments has improved investor confidence in the market, evidenced by data from Wind stating that 95.24% of companies listing in 2024 have seen oversubscription rates soar about 4 percentage points compared to last year. The current landscape is even more promising, with 11 companies experiencing over a hundredfold subscription, a sharp contrast to merely one company achieving the same last year.
However, challenges remain for these enterprises as they navigate the complex waters of dual listings. One legal partner from a South China law firm expressed that not all companies may find themselves suitably positioned for A+H listings. The discrepancies between regulations in the two markets require firms to comprehend and adhere to two distinct sets of standards, thereby raising compliance costs. Additionally, despite a more optimistic outlook, the Hong Kong market still struggles with liquidity issues, with a majority of funding often flowing towards a select few leading firms. This concentration may pose challenges for smaller and less competitive companies, making capital acquisitions in Hong Kong increasingly difficult.