HK's new board seen a big
draw for startups, not secondary listings
Send a link to a friend
[June 20, 2017]
By Elzio Barreto
KONG (Reuters) - Hong Kong stock exchange's plans for a new board to
allow sweeping changes to its listing rules could lure a slew of
technology startups, though they are less likely to attract Chinese
firms already listed overseas.
Major Chinese firms including Alibaba Group Holding Ltd <BABA.N>, search
giant Baidu Inc <BIDU.O> and e-commerce platform JD.com Inc <JD.O> all
picked New York over Hong Kong for initial public offerings (IPOs). So
the new rules offer Hong Kong a chance to bring the tech titans closer
to home with a secondary listing.
But bankers say these companies are not likely to get a big pickup in
valuation or trading activity to justify the cost and regulatory burden
of a secondary listing.
"The appeal for unlisted companies is more obvious than for
already-listed companies, especially for the non-giants. If your market
cap exceeds $10 billion, your liquidity and valuation is global," said
Kai Fang, head of equity capital markets at boutique investment bank
China Renaissance, which has advised on some of China's top technology
Hong Kong Exchanges and Clearing (HKEX) <0388.HK>, which operates the
stock exchange, unveiled a proposal on Friday for a new board that would
allow companies with share structures providing special voting rights,
and those yet to make a profit, to list.
They were the two key hurdles that prompted Chinese startups to choose
New York instead of Hong Kong for IPOs.
If approved, the changes could be implemented at the beginning of 2018,
HKEX chief executive Charles Li said on Friday.
Potential new business for the exchange could be significant.
Chinese companies targeted by the new board raised IPO funds of $49
billion in the past 10 years, including $34 billion raised by mainland
companies that listed in the United States with weighted voting rights
structures, the HKEX said. Those included Alibaba, Baidu and JD.com.
Another $15 billion was raised by Chinese companies that had yet to make
[to top of second column]
A floor trader monitors share prices during afternoon trading at the
Hong Kong Stock Exchange in Hong Kong, China September 26, 2016.
REUTERS/Bobby Yip/File Photo
voting-rights structure is critical for many unlisted Chinese firms such as ride
hailing company Didi Chuxing, Ant Financial and food delivery provider
Meituan-Dianping. The three companies, with a combined valuation of about $130
billion, have different classes of stock to give founders control of the
"They're trying to attract some of the high profile companies that have dual
class structures and wouldn't list here otherwise," said an investment banker
who worked on recent Chinese technology listings in the United States and who
declined to be identified. "Without those changes, these companies just won't
come to Hong Kong, full stop."
Still, some companies with little turnover or low valuations overseas might seek
a secondary listing in Hong Kong to bolster their prospects, including Chinese
firms that had been considering a delisting from New York.
Manchester United <MANU.N>, which scrapped a Hong Kong IPO because of its dual
share structure, could get a boost from Asian investors appetite for
sports-related assets, the bankers said.
"If you're looking at some companies that have relatively low liquidity in the
U.S., then the dual listing could make sense," Fang added. "The Hong Kong stock
exchange is trying to find a way to lure some companies that might originally
achieve a premium valuation in Hong Kong, but due to the voting rights issue
they choose to list somewhere else."
(Reporting by Elzio Barreto; Editing by Neil Fullick)
[© 2017 Thomson Reuters. All rights
Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.