23 October 2016
Deep discounts in Hong Kong share prices are putting off some mainland firms. Photo: Bloomberg
Deep discounts in Hong Kong share prices are putting off some mainland firms. Photo: Bloomberg

Why more Chinese firms could delist from HK exchange

Low valuations could prompt more mainland firms to delist their shares from the Hong Kong stock exchange and head back home, market professionals say.

“Selected Chinese entrepreneurs will be tempted to delist their companies from Hong Kong if the A/H premiums continue at these high levels,” Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management, told Reuters.

Over two-thirds of shares listed in both Hong Kong and China trade at a premium of more than 50 percent in the mainland, according to UBS research.

That gap has substantially widened since 2014, making it less appealing for companies to raise secondary funds in Hong Kong, the report noted.

The valuation gap between mainland-listed A-shares and Hong Kong-traded H-shares stems partly due to restrictions on capital flows in China, which create artificially high demand for stocks in the country.

At least 10 Chinese firms with Hong Kong listings have unveiled plans to either delist, spin off assets and list them in China or sell a controlling stake to a mainland-listed company since November 2015, Reuters noted.

In 2012, 2013 and 2014, there were only a handful of such deals.

UBS has identified 38 H-share firms with similar characteristics to those recently delisted, using criteria such as negative share price performance since listing, a forward price-to-earnings multiple below 30 and where founders own more than 40 percent of the companies.

The top 10 companies in the UBS list have a combined market value of about US$40 billion, and eight belong in the property sector, including Country Garden Holdings and Shimao Property.

Dalian Wanda, controlled by China’s richest man Wang Jianlin, announced recently that it plans to delist its commercial property arm from Hong Kong. 

Despite the recent delisting moves, Hong Kong Exchanges and Clearing Ltd. (HKEx), which operates the local stock exchange, dismisses suggestions that Hong Kong is fading in appeal as a listing venue for mainland firms.

“How, when and where a company lists are commercial decisions determined by a wide variety of factors, but we are convinced that Hong Kong remains a very competitive listing center with many advantages,” Reuters quoted the bourse as saying in a statement.

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