Citic's reverse takeover spurs interest in backdoor listings
Inspired by asset injection move, mainland private enterprises actively seek GEM listings as stepping stone towards main board
A growing number of mainland private enterprises are actively seeking to buy shell companies that are listed on Hong Kong's junior listing venue after state-owned Citic Group launched an innovative idea to inject essentially all its assets in its wholly owned steel-to-property unit Citic Pacific, market experts said.
The smaller listing hopefuls, which had originally planned to list in Shenzhen, have decided to look for a speedy way of going public by acquiring asset-light companies after waiting in the listing queue for two years.
"The mainland private enterprises are clearly backing up the trend of taking over companies listed on the city's supply-driven GEM board as an inexpensive way of getting swift access to funding channels," said Andrew Lam, director at accounting consultants BDO.
"A shell company listed on GEM could be easily fetched for HK$200 million, which is less than a luxury flat in Hong Kong and compared with HK$500 million on the main board," he said.
Lam said the GEM board is a desirable stepping stone since the requirements of profitability and market capitalisation are lower than on the main board.
"If a GEM-traded firm qualifies, it can apply for listing in the main board after trading for a year," said Lam, who cited the main board's profit requirement of at least HK$50 million in the last three financial years and a market value of HK$4 billion at the time of listing.