Hong Kong exchange welcomes New York defectors keen to list
Hong Kong's capital market is set to embrace a new breed of Chinese issuers that have left the Nasdaq and New York Stock Exchange for a listing in the city, as a more favourable valuation of shares and the depth of liquidity have lured them back home.
"There are more take-private activities by [the mainland] companies previously listed in the US markets since they got disillusioned and saw less benefit from a US listing," Mark Hyde, Clifford Chance's head of finance in Asia Pacific, said in a Redefining Hong Kong panel discussion hosted by the South China Morning Post.
Marshall Nicholson, a managing director with Beijing-based investment bank CICC, pointed out that a US listing was very costly to small companies since they had to issue quarterly financial reports and faced stringent legal burdens such as the Sarbanes-Oxley Act.
"Greed is a good thing sometimes," said Nicholson, referring to the firms' decision to relist in Hong Kong in pursuit of a higher valuation.
Watch: The Redefining Hong Kong Debate Series II
Nicholson added that the development of the city's capital market had allowed it to offer a more diversified range of products, including more issuance of new shares, bonds and convertible securities, gradually moving away from a reliance on initial public market offerings.
With financial aid from private equity firms, a dozen US-listed Chinese companies decided to go private through buyouts as US regulators and investors turned hostile after a few accounting scandals and short sellers' accusations over the so-called variable interest entity corporate structure. Under such a structure, Chinese firms and foreign venture capital funds set up an offshore vehicle to gain control of the Chinese firms through a complex series of deals.
Focus Media, a Shanghai-based display advertising firm, is planning to conduct a Hong Kong listing early next year.
This follows a consortium of investors including the firm's chairman, Jason Jiang, and Carlyle taking the firm private in a US$3.1 billion buyout deal in August 2012, one of the largest-ever buyouts of a Chinese firm, according to Dealogic.
"The capital market in Hong Kong today is as large as it is in New York and London," said Nicholson, who came to the city in 2002 after more than a decade of banking experience in New York.
"Much of the decision-making process by the international fund management firms has shifted to Hong Kong from their headquarters, a clear sign of the importance of the city."
Bill Stacey, chairman of the Lion Rock Institute, a Hong Kong-based free-market think tank, described the city as an international financial centre that took off after the handover in 1997 as its ample liquidity and sound legal infrastructure enabled it to directly compete with New York.
"The depth of market liquidity and timely policies are vivid examples of the city's response to the global financial crisis of 2008," Stacey said.
Stacey is chief executive of Vanda Securities, an investment manager and adviser.
The panel discussion was moderated by the Post's financial editor and columnist George Chen.