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Josephine Ma

SMALL firms are increasingly being forced to list abroad after the introduction of profit requirements by the Hong Kong stock exchange last September, a corporate consultant says.

Despite higher costs, more small firms floated on overseas exchanges such as NASDAQ and the Australian Stock Exchange over the past year.

Deloitte Touche Tohmatsu partner Jim Wardell said: 'If there were no such profit requirements, these companies would have listed in Hong Kong.' Dailywin listed on the London main market in March.

The company admitted that it had to turn to a more expensive listing option because it did not meet stringent Hong Kong profit requirements.

A listing candidate in Hong Kong has to achieve at least $20 million profit in the most recent financial year and a total profit of not less than $30 million for the two preceding years.

There has been controversy about whether the Hong Kong stock exchange should ensure the quality of its members by using profit generation as a criterion or if it should provide a fund-raising channel for small firms.

Some practitioners called for a second board.

Mr Wardell said his accounting firm was targeting Hong Kong firms which did not meet the profit requirements through the new second board in London, Alternative Investment Market (AIM).

'The target would be small companies, especially small manufacturers, with UK or European connections,' Mr Wardell said.

The new second board, set up on July 19, replaced the Unlisted Securities Market which will be shut by the end of next year.

Deloitte's senior manager David Rasouly said many listed companies had moved to the main market because of the market's strict listing requirements.

The London Stock Exchange had decided to set up a second board with more lenient requirements, he said.

Mr Wardell said listing on the alternative market would cost about the same as a listing in Hong Kong.

He said the alternative market listing had more straightforward requirements.

There is no requirement for a track record of trading.

If a company failed to generate income for more than two years, the directors and employees had only to agree not to sell any shares for at least a year after the flotation.

Mr Wardell said the alternative market was an option for small firms.

He said the most important consideration in choosing an overseas market would be the firm's links with it.

'If it is a purely Asian manufacturer, a successful flotation in the UK would be doubtful,' he said.

While it was difficult to estimate the number of Hong Kong companies listed overseas, because many Hong Kong firms were incorporated elsewhere, NASDAQ and the Australian Stock Exchange were two popular choices.

Ten Hong Kong firms were listed on NASDAQ, including AES China Generating, Bonso Electronics International, Concordia Paper Holdings, DSG International, Electroncon International, Great Wall Electronic International, IWI Holdings, Nam Tai Electronics, Pacific Basin Bulk Shipping and Radica Games.

An Australian Stock Exchange spokesman said there were 11 firms with headquarters in Hong Kong listed in Australia.

Mr Wardell said Chinese firms could not list on either London's main board or alternative market because the signing of a Memorandum of Understanding between the Chinese securities watchdog and the London exchange had been postponed, probably until the end of this year.



Firms opt to list on overseas markets