Robust demand and good valuations for shell companies have driven initial public offering activity on the Growth Enterprise Market, the Hong Kong Economic Journal reported Monday, citing market veterans.
However, this could develop into a potential threat to the reputation of the Hong Kong stock exchange’s secondary board, one observer said.
Fourteen companies have debuted on GEM so far this year, the best first half since 2004 in terms of the number of newly listed companies and the amount of funds they raised.
That compares with six listings on GEM in the same period last year and accounts for 30 percent of the total number of listings in Hong Kong so far this year.
It is not difficult for a shell company to meet the listing threshold of the secondary board, which requires at least HK$20 million (US$2.58 million) of recurrent operating cash flow for two years, the report said, citing Eugene Ha, an advisory partner at Grant Thornton Hong Kong.
The shell company can then be grown into a firm big enough to be eligible to float on the main board, doubling its valuation to, say, HK$500 million from HK$250 million, Ha said.
However, Computershare Ltd. managing director Pamela Chung warned of the potential hazard to the reputation of the stock exchange posed by mounting trades on shell companies, which could deter quality companies from seeking a listing in Hong Kong.
Translation by Vey Wong
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