IPO funds hit record high in 2019

China's A-share markets saw huge increases in initial public offerings in 2019, hitting a record high in fundraising over the past seven years, according to a private report. 

IPOs increased significantly by both volume and proceeds on the mainland. A total of 200 companies are expected to be listed on the A-share market in 2019, raising 252.8 billion yuan (US$36.1 billion), with a year-on-year increase of 90 percent by volume and a year-on-year increase of 82 percent by proceeds, a record high since 2012, according to EY's report released on Tuesday.

Strong momentum was seen in the second half of the year, with 136 companies going public in the A-share market raising 192.4 billion yuan, accounting for 68 percent and 76 percent by volume and proceeds.

This year's growth was mainly due to the early success of the newly launched STAR Market on the Shanghai Stock Exchange and mega IPOs with funds raised over 10 billion yuan, said Wang Yang, an EY Assurance partner.

In 2019, proceeds of the top 10 IPOs amounted to 100.6 billion yuan, up 49 percent compared with the previous year, among which four came from the STAR Market, with proceeds of 20.8 billion, representing 21 percent of total funds raised by top 10 IPOs. 

IPOs on the STAR ranked first and second by deals (35 percent) and proceeds (32 percent) among different boards on the A-share market. In terms of industries, new generation information technology led IPOs on STAR by both volume (44 percent) and proceeds (58 percent), followed by biology (volume 24 percent, proceeds 19 percent), according to the report.

Wang believes the innovation of STAR on listing standards, registration system, IPO pricing, trading and delisting rules lays a foundation for deepening reform of the A-share capital market. 

"Since the launch of STAR, the IPO market has performed steadily, investors showed great enthusiasm and various mechanisms have taken effect," Wang said. "For example, the registration system focuses on information disclosure, simplifies and optimizes listing standards and empowers investors to make choices, greatly enhancing the efficiency of resource allocation in the capital market and promoting the reform of other boards such as GEM and New OTC."

Due to a steady performance, STAR boosted enthusiasm from companies to float shares. As of December 16, there were 420 companies in the IPO queue list of the China Securities Regulatory Commission, representing a 51 percent increase.

Four mega IPOs raised funds above 10 billion yuan in 2019 compared with one in 2018, while average proceeds on the A-share market remained at a high level over the past seven years, second only to the highest level in 2018. 

Similar to the previous year, small and medium-sized enterprises dominated IPO activities, as more than 60 percent of funds raised came from IPOs with a value of less than 5 billion yuan each.

IPOs on the A-share market are expected to remain robust in 2020, according to EY, saying that proactive fiscal policies and flexible and appropriate monetary measures will drive the capital market upward, while 5G technology is also expected to drive the IPOs of innovative tech companies.

"With stronger IPO and delisting regulations, A-share delisting tends to become normalized and marketized and capital market reform will continue to go deeper. Besides, the CSRC’s support to qualified Taiwan-funded companies to float shares on China's mainland will have a positive impact on the A-share market," Wang said.