Chinese regulators have been mooting China depositary receipts (CDR) as a way for the country’s technology giants to gain domestic listing.
Given that this is a mandate from top leaders, whether the tech firms like it or not, they probably have to heed the call.
Does this mean Hong Kong has little chance of winning the coveted IPO deals?
Charles Li, chief executive of Hong Kong Exchange and Clearing Ltd. (HKEx, 00388.HK), is trying to convince mainland authorities that HKEx still has a unique role to play.
Li argued that there are a host of unanswered questions as regards the use of the CDR route for Chinese tech firms to list at home.
For example, shall China introduce the US model in terms of weighted voting rights like Hong Kong?
Or shall China integrate some Chinese characteristics to restrict such special voting rights?
If that is the case, will the unicorns and tech behemoths still want to list on the mainland?
If the CDR approach is implemented, how will the refinancing and merger & acquisition activities of companies be regulated?
Also, many of these Chinese unicorns have adopted a “variable interest entity” (VIE) structure. There might be some complex legal issues if they return home to list.
While these tech giants still want to list in China despite these legal and regulatory challenges, they can also opt to simultaneously list in Hong Kong and enjoy the ease of tapping into international investors. This is perhaps the underlying message Li is trying to get across.
This article appeared in the Hong Kong Economic Journal on March 29
Translation by Julie Zhu
[Chinese version 中文版]
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