Citic deal reaffirms Hong Kong's role as fund-raising centre
Acquisition shows Beijing's support for the city as a fund-raising centre for state-sector reforms
Enoch Yiu and Denise Tsang
Beijing-based conglomerate Citic Group's decision to list in Hong Kong through a reverse takeover is seen as a sign of the importance the mainland gives Hong Kong as a fundraising centre for its planned reforms of state-owned enterprises.
Analysts also see in it a vindication of local regulators' decision to stand firm on its rules despite the risk of losing a potential US$15 billion listing by e-commerce giant Alibaba. The firm last week decided to list in the United States after Hong Kong refused to bend rules to accommodate it.
In October, the Securities and Futures Commission and Hong Kong Exchanges and Clearing refused to allow Alibaba a structure that would enable its top management to nominate the majority of board members despite being minority shareholders. Such dual-share structures are banned in the city but are allowed in the US.
Hong Kong-listed Citic Pacific, the subsidiary of Citic Pacific, on Wednesday said it agreed to buy assets with a combined unaudited value of 225 billion yuan (HK$283.6 billion) to acquire its parent's entire business portfolio ranging from banking and insurance to fund management and leasing, in a move seen as a shortcut for the company to list in the city.
"The reason for choosing Hong Kong as the listing destination is because of its international legal system and corporate governance structure," a company spokeswoman told the South China Morning Post.
Edward Chow Kwong-fai, deputy chairman of the Business and Professionals Federation of Hong Kong, said this demonstrated the central government's support for Hong Kong's regulatory standards.
"Hong Kong has done the right thing in not lowering its corporate governance standards for a mega deal. We may lose one deal but we'll win over many big players who appreciate our standards," Chow said.
The Secretary for Financial Services and the Treasury, Chan Ka-keung, also expressed support for the SFC's stance.
"Keeping the one-share, one-vote principle is right for Hong Kong. This matches international standards. If some companies decide not to come here because they think Hong Kong's regulation does not fit them well, it is their decision," he said.
"Further financial reforms are crucial for China's continued transformation into a consumption-driven economy. That won't happen overnight and the process is likely to be bumpy. As an international finance centre, Hong Kong can play a role in the reforms."
Brokers said the Citic deal also showed the central government treated Hong Kong as the country's gateway to global finance. Reforming state enterprises is expected to cost billions of dollars that will require international funding.
HKEx chief executive Charles Li Xiaojia has said the city could support mainland reforms and the local exchange would welcome state firms to list here.
Joseph Tong Tang, executive director of Sun Hung Kai Financial, said listing in Hong Kong would make it easier for Citic and other state firms to conduct overseas acquisitions in future, adding that he believed other state peers would follow in Citic's steps.
Billy Mak Sui-choi, an associate professor at Baptist University, said the Citic deal sent a positive signal to the local market. "The market capitalisation of Citic Pacific and the Hong Kong stock market as a whole will be boosted significantly as a result."