Korea to float in Hong Kong
A hardly noticed piece of news was released by the Hong Kong exchange on August 30: companies incorporated in South Korea will now be allowed to list in Hong Kong. Korea will accordingly join a list of 19 other jurisdictions now recognised by Hong Kong Exchanges and Clearing - on top of the mainland, Bermuda, the Cayman Islands and, of course, Hong Kong.
That decision, however, comes with strings attached. HKEx will allow Korean issuers only if they revise, where necessary, their constitutive documents, which describe the governance of a firm. It wants the Koreans to implement the same shareholder protection standards used in Hong Kong. Firms unwilling (or unable) to change such documents will need to explain why.
Upon listing, issuers will also need to accept the authority of the Hong Kong courts.
As the flow of IPOs dries up, HKEx is doing the right thing by allowing more international issuers to tap the local market. It also wants to capture as big a share of the international listing pie as possible, ahead of the long-awaited launch of the international board in Shanghai.
It's a shame that the listing process in Hong Kong remains cumbersome, in particular for companies already listed on a major exchange and which already follow rigorous governance standards. For example, the exchange's requirement that existing listed firms publish the same extensive, telephone-book prospectus used by local issuers is, in many cases, overkill.
The pool of Korea-incorporated businesses that could see value in a Hong Kong listing is limited. These include the likes of property, retailing and fashion business E-Land, or homeware-maker Lock & Lock.
"The recognition of Korea as a place of incorporation by the stock exchange of Hong Kong is a positive development for Korean companies looking to raise capital outside Korea, creating an alternative to listing their Chinese subsidiaries," says David Lee, head of global equity capital markets, Daewoo Securities.
For example, car equipment maker Mando is said to have recently approached HKEx to list its Chinese assets - but bundled in a Korea-incorporated holding company.
"Smaller and possibly more dynamic companies - maybe in the technology space that have exposure to China but not always the infrastructure [there] - will now be able to raise funds for expansion outside Korea," says Lee.
Korean companies have also traditionally raised equity overseas through the issuance of depositary receipts denominated in US dollars.
Some larger Korean corporations may consider an offshore listing. But they may perhaps wait to list in Shanghai, as they eye possible acquisitions in China. Many of these firms are also sitting on a pile of cash, with no need to issue shares.
Korea is home to a large, liquid market in its own right, with substantial retail investor following.
Listing outside of Korea may not all be plain sailing, though. Korean marine firm STX Pan Ocean, which listed in 2005 on the main board in Singapore, subsequently sought and obtained a listing in Korea in 2007. Shares initially couldn't migrate from one exchange to the other, but, after this became possible, much of the trading ended up moving to Korea. As of the end of July, 96.5 per cent of STX's issued share capital was held through its Korean listing, according to a filing made with Singapore's SGX.
Philippe Espinasse, a former investment banker, is the author of IPO: A Global Guide (HKU Press)