Governments in China are Propping Up Hong Kong’s Ailing IPO Market
Chinese companies wanting to go public in Hong Kong have had a hard time getting international investors to buy their shares. Local governments in China are stepping up to help fill the void—and seeking more in return. Listings in Hong Kong raised just $2.6 billion this year, down 47% from the same period last year and far below 2021 levels, according to Dealogic.
Many initial public offerings in the Asian financial hub of late have leaned heavily on so-called cornerstone investors, which commit ahead of time to buy chunks of the deals at their listing price. Entities controlled by Chinese local governments purchased shares in nine of the 20 Hong Kong IPOs so far this year that had cornerstone investors, according to a Wall Street Journal analysis. In 2022, about a dozen IPOs in the city with cornerstones bagged investments from Chinese-government-backed entities.
Chinese cities and provinces have been trying to get companies to set up operations and expand in their locales, hoping to create jobs and ultimately bring in tax revenue over the long run. The financial incentives governments are doling out include buying shares when companies go public, and in some cases, making outright cash payouts to owners. Some state-backed investors have been explicit about what they want.
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