Companies Postponing IPOs In Hong Kong As Listing Valuations Plunge
Hong Kong is facing a possible decrease in initial public offerings (IPOs) this year as companies are now more reluctant to go public given the rapid plunge of valuations. Most of the companies that were looking to listing in Hong Kong have reportedly put their plans on hold following the more than 40 percent decline in the valuations of new share offerings.
The average price to earnings (PE) ratio in Hong Kong is currently at its lowest point in years, making it the cheapest in Asia right after Pakistan. Hong Kong's PE ratio now stands at 10.46 times, lower than the 11.30 time PE ration last year.
Hong Kong's PE ratio is also significantly lower than the Shanghai Composite Index, which stands at 13.46 times, and the S&P 500, which stands at 21.59 times. PE ratios represent the dollar amount an investor will need to invest to receive a dollar of a particular stock's earnings.
New companies who want to list on markets with low PE ratios will often find it very hard to bargain for a high valuation. For this very reason, a good number of the 200 companies that have filed for listings with the Hong Kong Exchanges and Clearing have decided to put their plans on hold.
Some of the companies have announced that they have decided to postpone their IPOs to next year.
According to reports citing sources close to the matter, the HKEX has been holding fewer meetings to approve new listings given the lack of applications. The bourse operator typically holds meetings twice a week, but now they reportedly meet only once a week or every other week.
Over the past decade, Hong Kong has ranked as the top IPO destination worldwide six times. Now, the city-state's bourse has slipped to third place. HKEX only managed to raise $8.9 billion for the first half of the year, well below the New York Stock Exchange with $17.5 billion and the NASDAQ with $14.4 billion.
HKEX was originally on track to retain the top position as the go-to IPO destination this year. However, some of the bourse's biggest IPOs, unfortunately, did not push through. Among the largest planned IPOs for this year was the planned $9.8 billion IPO by Anheuser-Busch InBev's Budweiser Asia unit.
The brewing company had revealed that it did not push through with its planned IPO as it was not able to get the valuation that it wanted. Meanwhile, three listings on the bourse, valued at a combined $11.1 billion were deferred in June.