Chinese companies eye IPO revival in the US and Hong Kong

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The landscape of Chinese companies seeking initial public offerings (IPOs) in the United States and Hong Kong is showing promising signs of recovery, as analysts predict a surge in listings next year. This optimism is fueled by several successful public offerings this year outside mainland China, which have renewed investor confidence in profitable exits.

On October 25, 2024, Chinese autonomous driving company WeRide made its debut on the Nasdaq, with shares rising nearly 6.8% on its first day of trading. Earlier this month, another player in the autonomous vehicle space, Pony.ai, submitted its application to list on the Nasdaq, reflecting these companies’ continued ambition to enter the public market.

The backdrop to these developments is marked by a period of caution following Didi’s IPO in the summer of 2021, which has come under intense scrutiny from regulators in both the US and China. Didi’s subsequent challenges, including suspending new user registrations and eventual delisting, have cast a long shadow over the IPO aspirations of many Chinese companies.

In the wake of these events, US and Chinese authorities clarified guidelines for listing Chinese companies in New York, but geopolitical tensions and changes in the market have significantly slowed the flow of such IPOs. Marcia Ellis, global co-president of Morrison Foerster’s private equity practice, expressed a sense of cautious optimism, indicating that the IPO market is expected to recover in 2025, supported by falling interest rates and the end of the cycle US presidential election.

Despite ongoing regulatory concerns, many issues that previously hindered the perception of US-China listings have been addressed, leading to renewed interest from Chinese companies in both Hong Kong and New York as they face challenges in gaining approval for prices in mainland China. Investor pressure for faster exits is driving this trend.

This year alone, around 42 companies have taken the plunge onto the Hong Kong Stock Exchange. At the end of September there were 96 IPO applications awaiting approval, demonstrating a robust pipeline of potential listings. Recent entries include Robotics Horizon, a developer focused on artificial intelligence and automotive chips, and CR Drink, a state-owned bottled water venture, both successfully listed in Hong Kong.

Renaissance Capital, which tracks global IPOs, highlighted these two offerings as the largest of the year, excluding those companies also listed on the mainland. Looking ahead, SF Express, a major delivery service, is planning an IPO in Hong Kong next month, while Chinese automaker Chery is targeting a listing the following year.

However, the overall pace of IPOs in Hong Kong has been slower than expected, as noted by George Chan, global IPO leader at EY. He pointed out that the fourth quarter is typically not ideal for new listings, and many companies may prefer to wait until early next year to launch their public offerings. Chan reported that early-stage investors remain optimistic about 2025 and are preparing companies for future IPOs, particularly in sectors such as life sciences, technology and consumer goods.

Investor sentiment towards Chinese stocks has brightened recently, supported by government stimulus measures and lower interest rates, which increase the attractiveness of stocks over bonds. The Hang Seng Index has risen more than 20% this year, reversing four years of decline.

Many Chinese companies that opt ​​to list in Hong Kong see it as a preliminary step to gauge investor interest before listing in other markets. Ellis noted that while geopolitical tensions favor Hong Kong as a listing venue, the depth of the US capital markets remains compelling for many companies, especially those in advanced technology sectors that may not yet be profitable but believe they will attract a favorable reception by US investors.

Foreign-based companies have accounted for just over half of all IPOs in U.S. stock markets since the start of 2023, marking a two-decade high, according to EY. Notable examples include electric vehicle maker Zeekr and American sports brand, both of which made their public debuts in the US earlier this year.

Windrose, a Chinese electric truck maker, also plans to list in the US in the first half of 2025, with plans for a dual listing in Europe by the end of the year. The company aims to deliver 10,000 trucks by 2027 and recently moved its global headquarters to Belgium.

The expected resurgence of Chinese IPOs in both the US and Hong Kong is expected to provide a much-needed liquidity event for venture capital funds that have invested in startups. The previous dearth of IPOs had diminished the incentive for these funds to back early-stage companies.

Investor interest in China is picking up as capital flows shift to the region, following a period of investment concentration in markets such as India and the Middle East. Preqin’s Lai highlighted China’s growing potential, highlighting improvements in earnings prospects, corporate valuations and the overall exit environment.

While the recovery in investor activity is still in its early stages compared to pre-pandemic levels, some investments are starting to emerge, particularly in consumer sectors such as beverage chains and food retailers. As the market stabilizes, the outlook for Chinese IPOs appears to be improving, setting the stage for a more dynamic investment landscape in the coming years.

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