21 March 2019
Kenneth Yeo, director and head of specialist advisory at BDO Financial Services Ltd. Photo: BDO
Kenneth Yeo, director and head of specialist advisory at BDO Financial Services Ltd. Photo: BDO

HK to stay as top IPO venue for China firms, BDO says

Hong Kong will remain the favorite listing destination for Chinese companies in the years to come, despite a recent agreement allowing them to list in Singapore, according to accounting and professional services firm BDO Financial Services Ltd., a member of BDO International Ltd.

Hong Kong still has a competitive advantage over Singapore in terms of capitalization, liquidity, trading volume and capital flows, Kenneth Yeo, director and head of specialist advisory at BDO Financial Services Ltd., told EJ Insight in an interview.

The China Securities Regulatory Commission (CSRC) and Singapore Exchange Ltd. (SGX) have agreed on a direct listing framework to encourage mainland firms to list in the city-state, SGX said in a statement on its website on Nov. 25.

The accord will enable Chinese companies to tap Singapore’s capital markets “more efficiently and reach out to our global investor base, offering the latter more choices and access to the growing Chinese economy”, SGX chief executive Magnus Bocker said.

But according to Yeo, big Chinese companies will still prefer Hong Kong because the Singapore exchange is far smaller in terms of capitalization and liquidity.

In 2011, SGX made an audacious attempt to take over the Australian Securities Exchange in an apparent bid to gain the financial bulk that would enable it to better compete with its Asian rival. “That will show you just how big Hong Kong is,” Yeo said.

The US$7.9 billion merger offer collapsed, however, after Australian regulators made it very clear that they would shoot it down.

“Over the past few years, some Chinese firms went to list in Singapore but some of them got into trouble: the company collapsed or some directors fled,” Yeo said.

“Our Singapore clients and colleagues also told us that it is difficult to raise capital in the Lion City if one is a Chinese firm.”

The CSRC-SGX agreement seeks to institute an “open door” policy that would facilitate the listing of mainland firms in Singapore.

With the agreement, a mainland company only needs to get approval from the CSRC and submit financial statements in accordance with the Singapore Standards on Auditing, the International Standards on Auditing or the US Generally Accepted Auditing Standards in order to apply for listing on the Singapore exchange, the SGX statement said. 

Singapore listing difficulty

One in every five stocks trading on the exchange is based in mainland China. But since 2008, at least 20 Chinese firms on the exchange have been suspended from trading or ordered to delist.

There were 152 mainland-based firms listed on Singapore’s S$893 billion (US$727 billion) stock market at the end of June 2011, Bloomberg News reported, citing data from the exchange.

Firms from various business sectors and industries may be interested in getting listed in Singapore, but larger companies and those raising capital prefer to go to Hong Kong for better valuation, Yeo said.

“Chinese IPO candidates cannot just pick a place where it is easy to get listed, they also need to consider the pricing, interests, investors response and multiples they can get,” the BDO director said. 

They also need to be prepared for the stock not to move or not be traded after the listing because it would be harder for them to raise money thereafter, he said. And Hong Kong’s continued strong institutional interest means the city remains one of the premier equity and capital markets for subsequent raisings by listed companies.

“We always tell clients that getting listed is not the end, it’s just the beginning,” he said. “Of course, some small Chinese firms that don’t have a lot of options may just opt for Singapore.”

The capitalization of the Hang Seng Index was at HK$7.45 trillion (US$957.58 billion) as of Dec. 16 while that of Singapore’s Straits Times Index was S$497.41 billion. Australia’s benchmark index came in at A$1.42 trillion (US$1.27 trillion), according to BDO.

IPO market resume

Besides Hong Kong, Chinese firms also prefer to list in the United States because of its size or Australia because of its less-stringent listing rules.

In recent years, issues have been raised, primarily by short-sellers, concerning the finances of several Chinese firms listed in the US. The resulting controversy has taken its toll on their share prices and has prompted many listed Chinese firms to privatize their companies.

And now that Chinese regulators have signaled they are ready to resume the approval of IPO applications, many listing candidates may stay in Shanghai or Shenzhen, instead of going overseas, especially if their financing need is not urgent. This is because domestic costs are lower and multiples remain generally higher, Yeo said.

On Dec. 1, the CSRC unveiled guidelines on the reform of the IPO market, paving the way for the resumption of public listings next year. The changes include a shift to a market-driven IPO system in a bid to increase transparency, and tougher rules for sponsors and advisors to prevent market fraud.

Fifty of the 760 listing candidates in the pipeline are expected launch their IPOs at the end of January, the mainland securities regulator said.

– Contact the reporter at [email protected]


    Ayishah Ma is a financial reporter on Greater China issues.

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