HKEx targets blockbuster IPOs

Hong Kong Exchanges and Clearing has proposed the creation of a new exchange that would allow firms to list before they have made a profit, as well as permit dual-class shares.
Hong Kong Exchanges and Clearing has proposed the creation of a new exchange that would allow firms to list before they have made a profit, as well as permit dual-class shares.PHOTO: REUTERS

HONG KONG • Hong Kong Exchanges and Clearing (HKEx) is sending a message to start-up companies the world over: We want your business.

The bourse operator last Friday proposed the creation of a new exchange that would allow firms to list before they have made a profit, as well as permit dual-class shares, an issue that caused Hong Kong to miss out on Alibaba Group Holding's US$25 billion (S$35 billion) initial public offering (IPO).

While small-cap trading in the former British colony has for years been plagued by wild price swings and low volume, a third venue would be a chance to compete with international rivals for blockbuster listings such as Ant Financial, Alibaba's finance affiliate.

Shares in HKEx rebounded yesterday, with the company's stock price jumping 2.83 per cent at one point to HK$203.20 - the highest level since June 12.

In an environment where multiple share classes are becoming more common, HKEx's plans are an attempt to broaden the types of stocks it can attract.

HKEx chief executive Charles Li said last Friday that Hong Kong has missed out on US$50 billion of offerings from mainland companies that either chose the United States, where dual-class share structures are allowed, or listed in China at a so-called pre-profit stage.

"We want to find ways to make sure we can continue to enhance Hong Kong's competitiveness as a global financial centre, attract high-growth new economy companies, diversify our markets, develop Hong Kong's new technology ecosystem and generate new additional tax revenue from trading for our government," Mr Li said at a media event after the proposals were published.

Pre-profit firms made up 68 per cent of new listings in the US last year, according to HKEx. The bourse will differentiate who can buy certain stocks on the new venue, with shares of companies that are available to individual investors forced to meet higher regulatory standards.

Appealing to companies that use multiple share classes or want to list before they have shown a profit "is necessary to help address the lack of growth exposures in our market, and to maintain our competitiveness as an IPO venue", HKEx said in its proposal.

The plans also suggest waiving rules that prevent Chinese companies that have gone public overseas from listing in Hong Kong. In recent years, mainland firms including Alibaba, Weibo and Baidu have chosen to have their shares traded in New York.

"It's not a bad thing at all because you can attract companies such as Alibaba," said Kingston Securities executive director of research Dickie Wong.

"But such companies - will they list on the third board in Hong Kong when they can list on the mainboard in Nasdaq?"

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A version of this article appeared in the print edition of The Straits Times on June 20, 2017, with the headline 'HKEx targets blockbuster IPOs'. Print Edition | Subscribe