Global Reach, Local Touch
What are the new listing rules?
The Hong Kong Stock Exchange (“HKEx”) has published new rules to attract listings of companies from emerging and innovative sectors. As of 30 April 2018, the following listing rules and relevant guidance letters will take effect:
What are the implications?
The new listing rules will have implications for the HKEx, the investors and the Hong Kong economy.
The HKEx will increase its competitiveness as a result of the listing reform. Increased flexibility and quicker approval process will attract high-growth, innovative companies, particularly Chinese start-ups like Xiaomi and Ant Financial, to list in Hong Kong.
In January 2018, Jack Ma also stated his intention to consider listing Alibaba in Hong Kong. This is compared with 2014, when Alibaba decided to list in the NYSE rather than HKEx, in which dual-class share structure was not accepted under rules at the time.
Investors are also exposed to additional risks under the new listing rules. First, pre-revenue biotech companies, in which biotech products have not materialized, can list on the Main Board. The success of these products is not guaranteed. Second, the traditional “one share, one vote” structure is replaced by the WVR structure, in which one share can carry greater voting power.
Many investors do not have experience in investing in companies with these structures. Investors must make well-informed investment decisions and safeguards must be introduced to protect ordinary shareholder rights.
In the long run, Hong Kong’s tech industry will benefit from the listings of innovative companies. The explosion of Fintech, Biotech and other innovative companies in the next decade will bring about a mass inflow of knowledge. Hong Kong investors and start-ups alike can learn from the overseas businesses, such as their business models and strategies, technologies, funding models, and governance structure.
Hong Kong is recognized as an international finance center with a strong regulatory regime and transparent vetting process. Despite the new listing regime, Hong Kong still faces tough competition from China and other countries.
On 4 May 2018, China’s security regulator published draft rules on the issuance of China Depository Receipts to encourage domestic flotation of offshore-listed tech companies. It will be interesting to see whether the new listing rules can attract more tech firms to Hong Kong.
PKF Hong Kong provides initial public offering services and has assisted many mainland enterprises in going public in Hong Kong. Please contact us to explore what opportunities could be relevant for your firm.
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