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IPO

IPO

‘Father of red chips’ backs new board to attract unicorns, but not new start-ups

HKEX has ended its consultation for the third board that comprises two platforms: one which allows for dual-class share structure and open to all investors, and the other for start-ups where only professional investors can invest in

PUBLISHED : Monday, 21 August, 2017, 8:43pm
UPDATED : Monday, 21 August, 2017, 10:44pm

The Chamber of Hong Kong Listed Companies chairman, Francis Leung Pak-to, also known as “father of red chips” said on Monday that the chamber supported the Hong Kong stock exchange’s proposed separate board to list dual class share companies here, but not new start-ups.

The HKEX has just ended a consultation last Friday for the third board’s establishment, whose listing requirements differ from the main board and the Growth Enterprise Market, essentially aimed at providing a listing venue for technology companies.

The new board will have two platforms: a premium market that is open to all investors and will host companies that are eligible to list on the main board, but have a dual-class share structure which the exchange currently disallows. The second is for start-ups where only professional investors can invest in.

Leung was opposed to the start-up board for the high risks that entailed. “Many start-ups lack track records and have a high risk of failure. They are not suitable to be traded on the stock exchange,” he said.

He supported however, the launch of a separate board only for the dual class shares with a market capitalisation of HK$8 billion, which is similar to a so-called unicorn new economy firm valued at US$1 billion.

“We need to set the bar high to attract the most successful and the biggest technology and new economy firms to list here,” Leung said.

“There are plenty of mainland “unicorns” which would be interested to list in Hong Kong, but our market needs to prepare itself for these companies. This is why we would need this new board that accept dual class share companies to list,” he said.

Many big technology companies such as Facebook and Google are dual class shares, which allow some shareholders to have more rights than the others. Hong Kong bans such types of companies to list but US allows it, which has led mainland e-commerce giant Alibaba to go for a listing in New York in 2014, instead of Hong Kong. Alibaba owns the South China Morning Post.

We need to set the bar high to attract the most successful and the biggest technology and new economy firms to list here
Francis Leung Pak-to, Chamber of Hong Kong Listed Companies

“Three years after losing Alibaba and our market still has done nothing to address the issue. We need to make sure our market can capture these companies to list. This is why we need to introduce the third board soon,” Leung said.

HKEX plans third board for new-economy firms

“When I introduced the red chips in Hong Kong in the 1990s, there were many criticisms that these companies are different from other H-shares. But then, we have many successful listings – China Mobile, CNOOC, Citic, China Resources – and they are still heavily traded by investors,” Leung said.

A red chip is a company incorporated in Hong Kong but has a mainland parent, which is different from an H-share company which is established in the mainland but listed in Hong Kong.

Leung is also against the HKEX’s proposal to let US-listed mainland companies seek a secondary listing in Hong Kong.

“This rule will turn Hong Kong into a second-tier market as most big players will go list in the US and then seek a secondary listing in Hong Kong. We oppose to this proposal,” Leung said.

Meanwhile, the Hong Kong Investment Funds Association has opposed to dual class share listings as they reduce the ability for fund managers to exercise their voting rights to decide on the remuneration, director appointments and other important corporate affairs.

The fund body said the development of dual class shares were “negative” to investor protection and urged the exchange to stick to “one share, one vote” principle.

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