Hong Kong exchange has record IPO pipeline amid china crackdown

HONG KONG – Hong Kong exchange’s new chief executive officer downplayed a regulatory crackdown by China that has dented the pace of initial public offerings (IPOS) and caused stocks to tumble in the financial hub, saying the bourse has a record pipeline of deals waiting in the wings.

About 200 companies have filed applications for IPOs at the Hong Kong Exchanges & Clearing (HKEX), marking a “significant and healthy” pipeline, Nicolas Aguzin said in an interview on Wednesday (Aug 11). The bourse has received “more and more” inquiries about in Hong Kong, even as some companies are evaluating market conditions and listing venues amid the regulatory moves, he said.

The exchange on Wednesday reported a drop in second quarter net income after a boom in initial public offerings abated toward the end of the first six months of the year. A regulatory onslaught from Beijing on its big technology companies and other sectors has shaken confidence, causing a selloff and putting some stock sale plans on hold.

“The Chinese authorities are in the long march to see how they are going to regulate this part of the industry, which is the new economy,” Aguzin said. The crackdown on big technology companies is a global phenomenon, he said.

China is also overhauling its rules for overseas IPOs, something that could benefit markets in Hong Kong. Chinese firms may, for example, be exempt from getting cybersecurity clearance if in the city, something they will need to sell shares in the U.S. Officials in the U.S. have also stepped up scrutiny of Chinese listings and delisted some big companies.

HKEX shares fell as much as 4.7% on Thursday to HK$493, paring this year’s gain to about 17%. Daiwa Securities Group Inc. lowered its earnings forecast by up to 31% for the coming three years to reflect a lower assumption on average daily turnover.

“While we are positive on HKEX’s longer term growth prospects, we see limited share price upside at the current valuation and potential consensus earnings cuts,” Citigroup Inc. analyst Yafei Tian said in a post-earnings report with a target price of HK$490.

Aguzin took over the bourse in May from his predecessor Charles Li, who led the company for 10 years and oversaw a doubling in revenue as he tied the Hong Kong market closer to China by establishing trading links to investors in Shanghai and Shenzhen. The Argentine-native and veteran JPMorgan Chase & Co. banker became the first non-Chinese to head the bourse, picked at a time of growing concerns over the status of the financial hub as Beijing tightens its control of the city.

A potential regime for blank check companies, to be released this fall, would also help boost the pipeline.

HKEX and the Securities and Futures Commission are launching a SPAC consultation “in a few weeks”, Aguzin said. They aim to offer a high quality framework to capture business opportunities while protecting investors, he said.

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