Hong Kong stock exchange backs down on demand for third board to let start-ups raise funds

The Hong Kong stock exchange seems to be backing down on plans for a new board and hopes to reach a consensus with the government to allow start-ups and multiple-class shareholding structures raise capital on the main board.

“I believe we have consensus on the broad direction but more time is required to work out the details,” said Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing on Tuesday, which launched a consultation process for a third board that lasted two months between June and August. “The questions now are how to do it, where to do it [new board or main board] and what kind of investor protection should be introduced.”

Li said that conclusions from the new board concept paper will be out soon and that HKEX is currently working on the conclusions as well as proposals for a second consultation. “We have not decided yet whether the two documents will come out together or separately. We will continue to discuss that with the government and Securities and Futures Commission.”

However, Hong Kong’s government has signalled that it intends to drop a plan to establish a new board on the city’s stock exchange for start-ups and companies with multiple-class shareholding structures to raise capital, choosing instead to amend existing rules to allow these companies to list.

The government is likely to reach a consensus with the SFC and the HKEX in the next few weeks, and publish a conclusion of the public consultations that have taken place over the proposed new board, said James Lau, Hong Kong’s Secretary for Financial Services and the Treasury.
“We have looked at both possibilities” of whether to introduce so-called weighted voting rights, or multiple-class structure, on the proposed board or the main board, Lau said. “The chance is higher on the main board.”

The unexpected comment is the first sign that the Hong Kong government, years after agonising over how best to retain and attract so-called new economy companies to raise capital in Asia’s largest destination for initial public offers, is now preparing to step away from the plan. What changed was the successful IPO last month by Shanghai-based ZhongAn Online P&C Insurance, which raised US$1.5 billion on the city’s stock exchange, even as its profit track record didn’t meet the main board’s requirement of a combined profit of HK$50 million in the three years before listing.

Hong Kong’s market ranked third among global destinations for IPOs in the first three quarters of this year, with 106 companies raising a combined HK$85 billion in the city, according to Deloitte’s data. That compares with the whole of last year, when 71 IPOs raised HK$134.3 billion (US$17.2 billion).