The equity financing landscape in Hong Kong's stock market witnessed a remarkable resurgence in 2024, setting the stage for a notable improvement over the previous year and reclaiming its position as the world’s fourth-largest new stock marketFactors contributing to this revitalization include substantial initial public offerings (IPOs) from major corporations like Midea Group and SF Express, which significantly boosted the fundraising amountReports indicate a staggering 89% increase in IPO fundraising compared to 2023, with follow-on financing activities surpassing IPO fundraising in terms of volume.

Analyzing the competitive landscape for underwriting and sponsorship services, it’s evident that Chinese investment banks command a robust presence in this domainThanks to their competitive pricing and deep-rooted connection with mainland companies considering listing, they outperform their foreign counterparts, capturing a substantial market share

Despite having fewer IPO mandates, foreign investment banks continue to demonstrate strong underwriting capabilities, particularly in follow-on offerings and rights issues where they have found notable success.

Looking ahead to 2025, several prominent figures in the investment banking sector are optimistic about the acceleration of mainland companies seeking to list in Hong KongThe advantages of equity financing in the Hong Kong market remain pronounced, and upcoming listings from companies such as CATL (Contemporary Amperex Technology Co., Limited) are expected to invigorate market activity further.

Hong Kong stock market IPO fundraising up 89 percent

Data from 2024 reveals that the total funds raised through IPOs in Hong Kong amounted to a staggering HKD 87.6 billion, with HKD 78.8 billion raised on the main board and HKD 235 million on the GEM (Growth Enterprise Market). The public fundraising and placement post-listing also recorded significant amounts, reaching HKD 87.2 billion and HKD 54.6 billion respectively, which indicates that follow-up financing has overtaken IPO fundraising in aggregate.

By quantity, the Hong Kong stock market hosted a total of 70 IPOs in 2024, with 67 on the main board and 3 on the GEM, matching the previous year's tally

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However, the total amount raised was significantly higher than in 2023, which saw a fundraising total of HKD 46.3 billion, reflecting an impressive growth rate of 89%.

Notably, the largest IPO since 2021 was witnessed with Midea Group’s H-shares, raising an impressive HKD 35.6 billion, accounting for about 40.64% of the total IPO fundraising for the yearOther companies such as SF Holding, Horizon Robotics, and China Resources Beverages also achieved significant fundraising levels, each surpassing HKD 5 billion.

The Hong Kong Stock Exchange (HKEX) highlighted its achievements in 2024, positioning itself firmly among the top four global markets for new stock listings, with both listing activity and capital raised far exceeding those of the previous yearThe exchange also welcomed two special technology companies listed under Chapter 18C, three companies listed after the GEM reforms, and marked its first De-SPAC transaction involving a special purpose acquisition company.

Sponsorship Leadership by Chinese Investment Banks

Statistics show that in 2024, the top ten sponsors for IPOs on the Hong Kong market were predominantly Chinese investment banks

China International Capital Corporation (CICC) led the pack, sponsoring 19 IPOs and holding a market share of 16.52%. Close behind was CITIC International, involved in 12 IPOs with a market share of 10.43%. When accounting for CITIC Securities’ five IPOs, the cumulative market share rises to 14.78%. Huatai Securities sponsored 8 IPOs, capturing 6.96% of the market, while other notable firms like Jianyin International, Haitong International, and China Merchants Jinling International supported several IPOs.

The only foreign investment bank that broke into the top ten in terms of sponsorship was UBS and J.PMorgan, each sponsoring three IPOs and sharing the tenth spot with Guotai JunanRenowned global banks like Merrill Lynch and Morgan Stanley managed to sponsor two Hong Kong IPOs each.

In recent years, the competitive strength of foreign investment banks in the Hong Kong IPO sponsorship sector has waned compared to their Chinese counterparts

Analysts suggest several reasons behind this trend:

First, a significant proportion of companies seeking to list on the Hong Kong stock market originate from mainland China, enhancing the capabilities of Chinese investment banks while fostering deeper ties with these companies;

Second, foreign investment banks generally face higher labor costs, leading to more expensive IPO sponsorship fees compared to their Chinese counterparts;

Third, in past years, global economic growth has slowed, prompting some foreign investment banks to narrow their focus to only pursue large projects, thus scaling back their involvement in small to medium-sized enterprises.

Foreign underwriting: favouring the "big one"

Underwriting capability remains a traditional advantage for foreign investment banksWhile the number of IPOs they sponsor may be lower than that of Chinese investment banks, their strong performance in refinancing deals and their preference for larger-scale transactions continues to be notable.

According to Wind data from 2024, major foreign investment banks such as Merrill Lynch (Asia Pacific), Goldman Sachs (Asia), J.P

Morgan, and Morgan Stanley (Asia) hold significant positions among the top ten underwriters in the Hong Kong equity market, with market shares of 17.77%, 4.09%, 2.7%, 1.76%, and 1.71% respectively.

For instance, Merrill Lynch (Asia) participated in only three underwriting projects, comprising two IPOs and one rights issue; however, the total amount raised from these two IPOs reached an impressive HKD 15.42 billion, alongside HKD 2.2 billion from the rights issueSimilarly, Goldman Sachs (Asia) also managed to underwrite three IPOs, raising a cumulative total of HKD 4.724 billion with each IPO averaging over HKD 1.5 billion, surpassing the average fundraising levels across the market.

Additionally, while their fundraising capabilities may not be as pronounced in numbers, firms like CMB International, Futu Holdings, and Agricultural Bank of China International actively participated in numerous IPO underwriting projects, handling 39, 40, and 40 IPOs respectively.

Accounting firms move to the top of the rankings

In 2024, the audit firms ranking in the Hong Kong IPO market indicated a significant concentration with the Big Four international accounting firms capturing an impressive 88% of the market share

Their dominance is notably higher than that seen in underwriting and sponsorship.

A noteworthy shift occurred this year as KPMG claimed the top spot, overtaking PwCKPMG serviced a total of 20 IPO projects in Hong Kong, claiming a market share of 27%, whereas PwC managed to support 23 IPOs, and EY and Deloitte followed with 16 and 14 IPOs respectively.

Historical data indicates that in 2023, the top five audit firms for IPOs in Hong Kong were PwC, EY, KPMG, Deloitte, and HK-based BDO LimitedPwC was leading with 23 serviced IPOs and a significant market share of 35.38%.

The shift in rankings, where PwC no longer holds primacy, can be attributed to an administrative penalty imposed by the Ministry of Finance in September due to overdue diligence in the auditing of Evergrande Real Estate’s annual report and bond issuance

As a result, PwC was stripped of their total business revenues of HKD 27.74 million from the period in question, along with a maximum fine imposed totaling HKD 297 million, summing up their total penalties to HKD 3.25 billion.

In the wake of the investigation rumors surrounding PwC last year, numerous listed companies collaborating with them announced changes in their audit firms, and it’s possible that some IPO businesses also transitioned to new audit partnersWhile the Big Four firms had previously held a more dominant share in mainland markets, their presence has diminished over timeNonetheless, they still serve as auditors for many early-listed corporations with significant financial engagements, establishing a substantial market presence within the Hong Kong IPO ecosystem.

On the other hand, the legal representation landscape for Hong Kong IPOs appears more fragmented