Date
24 January 2018
Charles Li, chief executive of the stock exchange, believes more Chinese "new economy" companies will be attracted to Hong Kong as a result of the new listing rules. Photo: Reuters
Charles Li, chief executive of the stock exchange, believes more Chinese "new economy" companies will be attracted to Hong Kong as a result of the new listing rules. Photo: Reuters

Hong Kong opens bourse to ‘new economy’ IPOs under new rules

Hong Kong’s stock exchange has unveiled the biggest overhaul of its listing rules and procedures in recent decades, giving it a better shot at accommodating the next Alibaba.

Biotechnology firms, companies with multiple classes of shares, and technology companies that are already listed elsewhere will be eligible for listing in Hong Kong, according to the new rules.

In an interview with financial newspaper Shanghai Securities News, Charles Li Xiaojia, chief executive of the stock exchange, said when these “newcomers” to the bourse are included in the stock-connect scheme, mainland investors will be able to trade those stocks as well.

Interested companies can submit their listing applications by the end of the second quarter next year at earliest, Shanghai Securities News reported.

To compete for the hottest listings, the exchange operator will create two additional chapters in its listing regulations for biotechnology firms and companies with multiple classes of shares to raise capital.

It has also proposed to modify the existing listing rules of the Growth Enterprise Market (GEM) and the Main Board in relation to overseas companies to create a new secondary listing route.

“Without compromising the procedural justice and the investor’s rights, all parties in the market have reached a consensus and made a decision that is most suitable for Hong Kong, and best for Hong Kong, rather than the safest and easiest decision,” Li said.

Li believes that more Chinese “new economy” companies are likely to be attracted by Hong Kong as a result, adding that “there will also be international companies coming to Hong Kong for listing, whether they are in the new economy or the traditional economy”.

Three years after it failed to land the initial public offering of Chinese tech giant Alibaba Group Holding, Hong Kong’s stock exchange operator has given the green light to companies with more than one class of shares to list.

Dual-class shareholding structures are adopted by several large information technology companies, particularly mainland China-based firms that have listed in the United States. It can consist of Class A and Class B shares, which have distinct voting rights and dividend payments.

Each of the Class A shares, which are usually sold to the public, would get just one vote, while Class B shares reserved for the company founder(s) or executive(s) would carry more than one votes.

The shareholding structure is primarily created to satisfy the perceived need of company management to control the company without holding a majority of the shares, i.e., they want the public equity market to provide financing for the company.

Asked about how to adequately protect investors under an unequal voting structure, Li insisted that there will be no change to the protection of minority shareholders after allowing companies with more than one class of share to list.

In addition to owning the controlling stakes, shareholders will be allowed to control the company through an amendment to the company’s articles of incorporation under the new rules.

Considering that new problems may arise in the future, specific investor protection measures will be introduced, Li added.

According to the new rules, biotech firms that have yet to generate any revenue would be able to list if their expected minimum capitalization topped HK$1.5 billion.

Companies with multiple classes of shares must be engaged in businesses classified as the new economy, with at least HK$10 billion in valuation and annual revenue of at least HK$1 billion.

Technology companies with market cap reaching HK$10 billion or more that are already listed elsewhere will be eligible for a secondary listing in Hong Kong, with their existing shareholding structure.

“Most of the new economy companies have a considerable market cap. In this case, it would be easy for these companies, if they are listed, to be included in the stock-connect program,” said Li, “They will then be eligible for mainland investors to trade.”

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CG 

EJ Insight writer

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