China IPO Review: Mainland market revives in April amid clouds over US, HK hopefuls

Shanghai, China. Source: Robynne Hu/Unsplash

As the nation gradually comes around from business disruptions brought by the pandemic, IPO offerings of Chinese companies – especially those on mainland boards – have picked up in April 2020 as 30 companies raised an aggregate of almost $3.11 billion, according to proprietary data compiled by DealStreetAsia.

The number of IPOs and total funds raised has both increased substantially in April as compared with drop-offs in March when the COVID-19 pandemic took a heavy toll on public markets around the world. Twenty-six firms in the mainland and Hong Kong garnered a combined $2.02 billion in March.

Their domestic peers had earlier raised about $4.26 billion across 27 IPOs and over $7.39 billion across 39 IPOs in February and January 2020, respectively.

The report tracks IPOs of mainland and Hong Kong-based companies on one of the nine boards surveyed: the STAR Market, the Main Board of the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), which consists of the Main Board, the ChiNext Market, and the SME Board, as well as the Hong Kong Stock Exchange (HKEX)’s mainboard and GEM, and America’s Nasdaq and New York Stock Exchange (NYSE).

In our monthly IPO analysis, we have put together detailed charts and dissection of prominent IPOs of companies based in Greater China, their PE/VC investors, and industries that enjoyed more listings than others between April 1 and April 30, 2020. (Exchange rate of $1 = 7.07 yuan/HK$7.75.)

Revival of the mainland IPO market

IPO activity of Chinese companies on mainland boards visibly recovered in the month after Beijing ended a strict lockdown of Wuhan, a Chinese city that had borne the brunt of the pandemic, on April 8. Travel restrictions inside the nation were lifted, and businesses gradually crawled their way out of the shadow of the deadly virus.

A total of 24 companies, or 80 per cent of new issuers in April, floated shares on mainland boards including the Main Board of the SSE, the Nasdaq-style STAR Market, as well as Shenzhen’s startup bourse ChiNext and SME Board. There was no new listing on the Main Board of SZSE.

Among them were six IPOs on the STAR Market, doubling the amount in March. Since it started operations in July 2019, the STAR Market has witnessed the IPO of 106 companies that boast a combined market capitalization of nearly 1.69 trillion yuan ($238 billion), according to official statistics.

Following its early success in keeping some of the country’s technology firms closer to home through the launch of the board, Beijing stepped up efforts to upgrade domestic IPO venues on April 27 through the introduction of a scheme to build its second US-style, registration-based IPO system on the ChiNext Market.

The proposed reform would further set aside previous rigid profitability requirements, capital controls, and an approval-based IPO process that could take up to two years.

China’s Nasdaq-style STAR Market and the planned reform of the ChiNext Board will make it “substantially easier for investors to exit from their high-tech portfolios,” said Shaw Wang, founding partner of Beijing-based venture capital firm Unity Ventures.

The reform in the Chinese capital market will nurture more “small and medium-sized technology firms, especially leading players in their respective areas,” said Wang. He added that it is changing the past dilemma when “not many investors were willing to back Chinese technology startups because they saw relatively fewer possibilities to exit from such investments.”

The official launch of the reform is scheduled to this August to coincide with the 40th anniversary of the Shenzhen Special Economic Zone, as per a Reuters report.

IPOs on mainland boards are expected to rise amid the government’s heightened efforts to channel capital into the country’s innovative startups in a competition for technological supremacy with the US and to help businesses weather an economic downturn brought by the pandemic.

Doomed HK & US IPO outlook

Unlike the revival of IPO activity on mainland boards, the number of new listings in Hong Kong more than halved to five in April from 13 in March during continued social-distancing curbs like compulsory quarantine of two weeks.

While mainland executives were unable to travel for roadshow and bell-ringing ceremonies, all but one issuer on Hong Kong boards were local companies, as compared with March when nine IPOs in the city were made by mainland firms.

On June 2, the local authority decided to extend compulsory quarantine to July 7 for travellers from mainland China, Macau and Taiwan, and September 18 for arrivals from overseas. This is expected to bring more challenges to IPO candidates from outside of Hong Kong.

But the city might enjoy a soft landing from the pandemic impact if it were soon to embrace the homecoming of a flood of US-listed Chinese Internet giants such as Baidu, Ctrip, NetEase and JD.com. These companies held preliminary talks with banks about a secondary listing option in the city, potentially follow the footprint of Alibaba’s landmark offering in November 2019.

“It is already an ongoing trend for US-listed Chinese firms to return back to the domestic capital market. Such a trend will certainly continue in the following one to two years, but we’re not sure yet of its longer-term development,” said Wang.

The venture capitalist is one of the seven founding members of Baidu, as well as an early investor of 36Kr Holdings Inc, a Chinese firm that has seen its Nasdaq-listed shares drop around 50 per cent since their peak of $13.06 in November 2019.

“A simple logic behind the trend is that some Chinese issuers are underappreciated in the US, while they can earn a better listing price and a higher market capitalization in the home market. The key reason is that their company value is not fully recognized,” said Wang.

His remarks come as some US-listed Chinese firms are suffering from investor suspicion and declining foreign appetite amid the trade disputes between Beijing and Washington.

A series of accounting scandals involving companies like China’s once Starbucks challenger Luckin Coffee further dented the path for their domestic IPO candidates on a US board, leading to potentially tightened scrutiny.

Commenting on the impact of the scandals, Nasdaq China chief representative Hao Yusheng said during an online event that US-listed Chinese “high-quality” companies like JD.com, ZTO Express, and JOYY Inc were not influenced by the misdeeds of their domestic peers, but instead enjoyed continued rises in their share prices.

He believed that the scandals would not have “a material impact” on IPO candidates from China, although it could bring challenges to some of the upcoming smaller IPOs. “I think the most important thing for IPO hopefuls on a US board is to strengthen their business fundamentals and to show investors their capabilities of maintaining sustainable growth.

“If the SEC and [American] stock exchanges were to alter the listing rules, I think the revisions must not be targeting Chinese candidates but will address all IPO applicants without exception,” said Hao. In terms of having the US auditing authority to review the accounts of Chinese IPOs, he said: “it will be more of a discussion between Beijing and Washington.”

Overall, there were only around 13 IPOs by Chinese enterprises in the US through May 2020, compared with the 30 to 40 IPOs in 2018 and 2019.

However, the outlook for Hong Kong’s public markets is still doomed until the second quarter at least, after China’s parliament approved a new national security law on May 28 to amend Hong Kong’s Basic Law, which imposed more political uncertainties to the protest-ridden city.

18 VC/PE-backed IPOs in April 2020

Expand Table

HeadquartersEnglish NameIPO LocationListing DateFunds Raised in USD (Million)PE/VC Shareholders (Before IPO)IndustryVerticalsSymbol
BeijingWiMi Hologram Cloud IncNasdaq2020-04-01$26.00Asean China Investment Fund IVMarketing/AdvertisingAR & VRWIMI
NanjingNanjing Institute of Surveying, Mapping & Geotechnical Investigation Co LtdSZSE ChiNext2020-04-03$64.78Jiangsu Govtor Capital Group (formerly Jiangsu High-Tech Investment Group) Information ServicesUrban Planning300826
Nantong (Jiangsu)Jiangsu Jingyuan Environmental Protection Co LtdSTAR Market2020-04-09$54.42Huadi Minsheng Investment (华迪民生), Huamei International Investment Group, Canrong Investment (灿荣投资)Environmental ServicesCleanTech688096
ShanghaiShanghai Sanyou Medical Co LtdSTAR Market2020-04-09$152.19Taibao Investment (泰宝投资), Yingke Innovation Asset ManagementMedical Devices & EquipmentN/A688085
ChengduHitGen IncSTAR Market2020-04-16$118.07Danqing Investment Limited (Shiyu Capital), CDH InvestmentsPharmaceuticalsN/A688222
ShanghaiNational Silicon Industry Group Co LtdSTAR Market2020-04-20$341.17Guosheng Group, National Integrated Circuit Industry Investment Fund, SummitView Capital, SIMIC HoldingsSemiconductorsN/A688126
ShanghaiShanghai Golden Union Business Management Co LtdSSE Main Board2020-04-21$105.73Feijun Yuanbei Equity Investment (managed by Passion Capital), Meridian Capital, Nord Engine Xin Jin Venture Investment, TS First Fortune Asset ManagementCommercial PropertyN/A603682
TianjinTianjin Ruixin Technology Co LtdSZSE ChiNext2020-04-21$47.81GS Capital (虢盛资本), Shenzhen Anpeng (backed by BAIC Capital), Dingfeng AssetMaterialsN/A300828
Zhoukou (Henan)Henan Jindan Lactic Acid Technology Co LtdSZSE ChiNext2020-04-22$90.24Chengxin VC, China First Capital Group Limited, FoodN/A300829
NingboNingbo Jintian Copper Group Co LtdSSE Main Board2020-04-22$224.19Youngor Investment (雅戈尔投资), Hongshi Venture Capital (managed by Sinowisdom Capital)MaterialsN/A601609
ChangdeHunan Xiangjia Animal Husbandry Company LimitedSZSE SME2020-04-24$107.36Dajing Shuangjia Investment (大靖双佳), Xinjiang Weitong Equity Investment Management (Weitong Capital)AgribusinessN/A002982
Hong KongAkeso Inc - BHKEX Main Board2020-04-24$382.93Phaeton Capital Management, Hongtu Ventures, Shenzhen Gaotejia Investment Group, Loyal Valley Capital, Shanghai Hongjia Asset Management Limited, Lake Bleu Capital, China Reform Investment Fund, Triwise Capital, Shenzhen Capital GroupBiotechnologyBiotech9926
ShenzhenShenzhen Fortune Trend Technology Co LtdSTAR Market2020-04-27$253.26Goldstone Investment, Haitong Kaiyuan Investment (海通开元) SoftwareFintech688318
AnshunGuizhou Sanli Pharmaceutical Co LtdSSE Main Board2020-04-28$42.35Guiyang Venture Capital, Cowin Capital, Chongqing Boyi Equity Investment Fund Management, Beijing Zhonghe (managed by Tianjin Zhongheyida Investment), GF Xinde InvestmentPharmaceuticalsN/A603439
HefeiAnhui Coreach Technology Co LtdSZSE SME2020-04-28$64.92Shenzhen Nanshan Skyworth Information Technology Industry Fund (南山基金)HardwareN/A002983
BeijingBeijing Bei Mo Gao Ke Friction Material Co LtdSZSE SME2020-04-29$119.66Jiaxing Huakong Equity Investment (嘉兴华控)DefenseN/A002985
HangzhouHangzhou Raycloud Technology Co LtdSTAR Market2020-04-29$61.26YF Capital, Alibaba Venture Capital ManagementSoftwareE-commerce688365
SuzhouCybrid Technologies IncSSE Main Board2020-04-30$59.19Yinhuang Investment (银煌投资), Huizhi Investment (汇至投资), Dong Yun Venture Capital, Jolmo CapitalMaterialsN/A603212

Exits from high-tech firms to grow

Eighteen mainland and Hong Kong-based issuers, or 60 per cent of newly listed companies in April, were backed by private equity (PE) and/or venture capital (VC) investors before their shares are traded on one of the nine IPO destinations surveyed.

The number is roughly in line with that of March when there were 15 PE/VC-backed IPOs, representing about 58 per cent of all IPO-ed companies in the month. It stood at 55, or over 81 per cent of all new listings, in February.

In mainland China, the SSE Main Board (three out of seven IPOs) and SZSE SME Board (four out of seven IPOs) continued to see more non-PE/VC-backed issuers than other boards. Different from the Nasdaq-like STAR Market, the IPO systems and standards of these old-school markets still favour profit-making traditional industries – areas that demand little external financing as compared with the high-tech and new economy space.

Hong Kong’s Main Board and GEM combined had four (out of five) non-PE/VC-backed IPOs in the month, more likely because IPO hopefuls and their institutional investors held back the listing plan for a better market window.

A sizeable chunk of PE and VC backers in April are China-based funds little known in the western world. This is expected to change in the following years amid Beijing’s efforts to build a more vibrant capital market that could usher in international, foreign currency-denominated funds for the country’s pre-revenue high-tech startups.

“Back in 2010, most [Chinese] Internet companies preferred to go public in the US because there were few listing options in the domestic market, which used to emphasize much on profits and losses,” said Chen Weiguang, managing partner of early-stage venture capital firm BlueRun Ventures, during a webinar.

BlueRun Ventures, which was founded in Silicon Valley in 1998 and set up the China team in 2005, primarily looks into early-stage technology investments. It manages over 10 billion yuan ($1.40 billion) across multiple yuan and U.S. dollar funds in China shows the company website.

Chen said that he is “delighted” to see the introduction of the STAR Market and the upcoming reform of the ChiNext Board.

The two listing alternatives, he added, are “more than suitable” for the IPO of domestic portfolios, especially Chinese companies that offer customized industrial Internet solutions to corporate clients. “These projects have been facing challenges such as persuading their American investors… who shows more recognition of all-purpose industrial Internet businesses.”

As an early signal of the changing path to exits, April already showcased a handful of local IPOs supported by renowned institutional investors:

Akeso, a China-based biotech firm that raised nearly $383 million in what was the month’s largest IPO, was backed by a host of investors including China-focused PE Loyal Valley Capital, government-backed Shenzhen Capital Group, and Hong Kong-based asset manager Lake Bleu Capital.

Chinese business data platform Tianyancha shows that the company had garnered at least $350 million across six funding rounds in the primary market since its inception in 2012.

Other such cases include Software-as-a-Service (SaaS) developer Raycloud Technology, which raised 433 million yuan ($61 million) in a STAR Market IPO and backed by Alibaba co-founder Jack Ma’s YF Capital; CDH Investments-backed biotech firm HitGen that floated an 835-million-yuan ($118 million) STAR Market IPO; and National Silicon Industry Group, a chip developer that counts China’s Big Fund and SummitView Capital among its investors.

“The trade war between China and the US, as well as recent disputes around Huawei have arisen attention to develop domestic technology infrastructures,” said Chen.

“Chinese companies that work on core technologies like semiconductor will have more opportunities to go public on a mainland board,” he said, referring to new export restrictions imposed by the US on April 27 to keep its semiconductor production equipment and other technology away from Beijing’s military.

A darling of mainland IPO investors

The IPO outings in April indicate that Chinese traditional, profitable asset-intensive companies are still the darling of public market investors. Hardware and material industries were the most active sectors in terms of the number of IPOs, as they each saw the listing of three mainland firms in the month.

Five of the six IPOs were made by small and mid-cap companies that boast a market capitalization of no more than $10 billion. The only offering that made it to the top 10 largest IPO in the month was a 1.59-billion-yuan ($224 million) IPO of Ningbo-based non-ferrous metal processing firm Jintian Copper Group on the SSE Main Board.

Construction, industrial machinery, medical devices & equipment, and pharma came second with two IPOs each. Among them were three IPO offerings worth more than $100 million:

  • Shanghai Sanyou Medical, an orthopaedic implants supplier backed by Qiming Venture Partners, garnered 1.08 billion yuan ($152 million) in an IPO on the STAR Market. Qiming remains as its largest shareholder that holds a 27.11 per cent stake through QM5 Limited after the IPO.
  • Yuejian Intelligent, which manufactures textile machinery equipment in China, raised 863 million yuan ($122 million) by trading its shares on the SSE Main Board.
  • Chengdu-based HitGen, a small molecule drug discovery and research platform specialized in DNA encoded chemical libraries (DELs), floated an 835-million-yuan ($118 million) IPO on the STAR Market. Chinese alternative investment specialist CDH Investments owns 3.64 per cent shares in HitGen after the IPO, down from 4.05 per cent.

The software industry also had two PE/VC-backed, so-called “new economy” IPOs, including the aforementioned $61-million IPO floated by Raycloud Technology, which develops SaaS solutions for e-commerce players, and another one that was the third-largest deal in the month:

  • Fortune Trend Technology, which generates revenues by providing SaaS products for securities trading, gathered 1.79 million yuan ($253 million) on the STAR Market. The company is backed by CITIC Securities’ Goldstone Investment, and Haitong Kaiyuan Investment, a subsidiary of China’s Haitong Securities.

There were also million-dollar IPOs in the fields of mining, oil & gas, and defence, as well as Beijing’s much-lighted semiconductor industry:

  • National Silicon Industry Group, one of the largest providers of silicon materials in China, raised 2.41 billion yuan ($341 million) in the second-largest IPO on the STAR Market. Chinese state-owned investment firm Guosheng Group and the National Integrated Circuit Industry Investment Fund, widely known as “Big Fund,” are majority shareholders of the chip developer.

In an attempt to provide more detailed analysis and to enable comparison between primary and secondary markets, DealStreetAsia has introduced a standardized system for industrial classification since April 2020.

The system currently includes over 50 industries, as well as more than 45 new economy and high-tech verticals that will progressively increase to adapt to local market conditions in our closely watched areas of Greater China, Southeast Asia, and India.

Top 10 IPOs of the mainland and Hong Kong-based firms in April 2020

Expand Table

HeadquartersEnglish NameIPO LocationListing DateFunds Raised in USD (Million)PE/VC Shareholders (Before IPO)IndustryVerticalsSymbol
Hong KongAkeso Inc - BHKEX Main Board2020-04-24$382.93Phaeton Capital Management, Hongtu Ventures, Shenzhen Gaotejia Investment Group, Loyal Valley Capital, Shanghai Hongjia Asset Management Limited, Lake Bleu Capital, China Reform Investment Fund, Triwise Capital, Shenzhen Capital GroupBiotechnologyBiotech9926
ShanghaiNational Silicon Industry Group Co LtdSTAR Market2020-04-20$341.17Guosheng Group, National Integrated Circuit Industry Investment Fund, SummitView Capital, SIMIC HoldingsSemiconductorsN/A688126
ShenzhenShenzhen Fortune Trend Technology Co LtdSTAR Market2020-04-27$253.26Goldstone Investment, Haitong Kaiyuan Investment (海通开元) SoftwareFintech688318
NingboNingbo Jintian Copper Group Co LtdSSE Main Board2020-04-22$224.19Youngor Investment (雅戈尔投资), Hongshi Venture Capital (managed by Sinowisdom Capital)MaterialsN/A601609
Panzhihua (Sichuan)Sichuan Anning Iron and Titanium Co LtdSZSE SME2020-04-17$157.71N/AMiningN/A002978
ShanghaiShanghai Sanyou Medical Co LtdSTAR Market2020-04-09$152.19Qiming Venture Partners, Taibao Investment (泰宝投资), Yingke Innovation Asset ManagementMedical Devices & EquipmentN/A688085
ChangshaHunan Heshun Petroleum Co LtdSSE Main Board2020-04-07$131.21N/AOil & GasN/A603353
Shaoxing (Zhejiang)Zhejiang Yuejian Intelligent Equipment Co LtdSSE Main Board2020-04-15$122.07N/AIndustrial MachineryN/A603095
BeijingBeijing Bei Mo Gao Ke Friction Material Co LtdSZSE SME2020-04-29$119.66Jiaxing Huakong Equity Investment (嘉兴华控)DefenseN/A002985
ChengduHitGen IncSTAR Market2020-04-16$118.07Danqing Investment Limited (Shiyu Capital), CDH InvestmentsPharmaceuticalsN/A688222

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.