Lee rises to mainland's new listings challenge
STOCK Exchange of Hong Kong chairman Charles Lee Yeh-kwong is the man at the centre of efforts to co-ordinate the listing of Chinese state-owned companies in Hong Kong.
In a wide-ranging interview, Mr Lee explained the way state companies were listed abroad and the associated problems that have sometimes arisen. Q: Mr Lee, so far there are six Chinese state-owned companies listed on the Stock Exchange of Hong Kong, andthe second group of companies has also been chosen. Has the exchange conducted any review to assess the experience of the first phase of the listing? A: The listing division of the stock exchange constantly reviews our experience with the listing of H shares. So far we have listed six shares.
On the whole, the listings have been very smooth. There were discussions about the pricing mechanism and the offer mechanism of the H shares. Our job is to ensure the offer mechanism is fair and there is a sizeable proportion of shares for the Hong Kongpublic. Q: There are three companies in the first group which have yet to be listed. Why? A: Basically each company has to go through a restructuring process. Sometimes the delay is really in the restructuring of the company.
At the Hong Kong stock exchange, the regulatory framework that we provide for H shares calls for very high standards. All these issues are floated to international standards.
In particular, the financial statement must be prepared in accordance with Hong Kong or international accounting standards. On top of that, they have to comply fully with our very stringent listing rules. So that really takes time. Q: Are the requirements too stringent for the Chinese companies? A: I don't think we over-regulate these companies. In fact you can see the six H shares - they met a very enthusiastic global response and support.
The market success is indicative of the impressive performance of these shares, which have shown gains in value ranging from 60 per cent to 150 per cent from the issue prices.
And during the roadshows in New York and London a couple of weeks ago, the response we got from institutional investors was that they were pretty comfortable with the regulatory environment in Hong Kong for these shares.
So it shows that maintaining international standard is very important to promote investor confidence. Q: When can the last three companies in the first group be listed? A: For Tianjin Bohai, I have not got the timetable yet. I believe the restructuring is going on. I think the company will tell me the planned listing date soon. They are thinking of some time in the middle of the year.
Yizheng's application will be heard tonight [February 9] by the listing committee. Their target is some time in March.
The next one is Dongfang. Their target is some time in April. Q: Among the 22 companies in the second batch, how many of them will have their primary listing in Hong Kong? A: The great majority. I don't have a figure. I think they are only thinking of sending maybe three or four companies to international markets like New York and London for direct listing.
So the great majority will be here in Hong Kong. And New York listings are being discussed basically as an experiment.
The feedback we had from New York while we were doing the roadshow there was that a lot of institutional investors would prefer to see the H shares listed in Hong Kong first, the US used only for secondary listings.
They would like to see a sizeable home market. Hong Kong is regarded as the home market for H shares because of our proximity to China and because of our close ties to China.
The institutional investors feel that Hong Kong understands China and its situation much better than any other market. So if Hong Kong is the home market, the share price here would reflect the true price. Q: Might the Chinese authorities change their minds after listening to the advice of international investors and decide to list all 22 companies direct in Hong Kong? A: They are only exploring the possibility of listing in international markets. I think it is a good thing that they should explore that possibility.
They are not saying you must go to New York. They only want to test the market. At the end of the day, maybe they will decide not to go to New York directly, but that is a decision they haven't made yet.
They haven't decided which companies must go to New York either. Q: The Chinese authorities have chosen not to formally announce the names of the second group of companies chosen to list overseas. Does that mean that some of them will not be able to listoverseas? A: It is possible, because the authorities emphasise that this list is only a preliminary list - meaning it can be expanded or shortened.
You have to remember that each one of them would have to go through a restructuring process.
Some of them may have problems in restructuring - but we don't know yet. That is why the list is tentative. Q: When do you expect the first company in the second batch to be listed in Hong Kong? A: Some of the candidates expressed a wish to be listed in about six months. But I can't say with certainty whether they would be able to do it.
It really depends on how long it takes the accountants to audit the past three years' accounts. That is the critical part.
The writing of the prospectus is not that difficult because the legal framework, the tax structure and everything are already in place. I think it is possible they can do it in six months, so we would probably see the first of the second batch in the second half of this year. Q: A common feature of the Chinese companies chosen for overseas listing is that they are all large. Can the Hong Kong market absorb them so quickly. A: The Hong Kong market today is very different from five or 10 years ago. It is a very internationalised market. We have funds from the US, Europe, Southeast Asia and Japan and China, so we are fairly internationalised.
The appetite of institutional investors is very big. The problem at the moment is that we don't have enough H shares for them to invest in. In fact, it is the other way around.
Institutional investors complain that our market for H shares is too small. They would like to see a lot more H shares being listed. Part of our recommendation to China is to increase the pace of listing the H shares. Q: Are there sufficient professionals in Hong Kong to cope with the special needs of the Chinese enterprises? A: We have professionals from all over the world working in Hong Kong.
For example, in the case of Shanghai Petrochemical, a lot of American lawyers, investment bankers were involved. So we are very flexible.
The major international securities houses all have offices in Hong Kong.
If there is business, they will hire more people from around the world, not necessarily from Hong Kong.
If you have business, you will find enough people here because the terms of employment in Hong Kong compare very favourably with the rest of the world.
So we are very expensive here and I think in Hong Kong the pay for lawyers, accountants and merchant bankers compares extremely well with those in the US, Britain or Australia. Q: But you need people who are familiar with China to deal more effectively with these Chinese companies. A: I agree that apart from the technical side, the language and cultural links are very important. This is why Hong Kong plays a very vital role. We have a lot of people in Hong Kong who can do that job. Q: The head of the China division of the listing division has recently left to join the private sector. Is there competition in the financial community for qualified professionals? A: We have some 80 staff in our listing division. Among them 50 are professionals, including lawyers, accountants, MBAs and bankers.
We don't have any problem in recruiting young professionals. In fact we have more applicants than we can take at the moment, because the exchange is a very good training ground for them and we don't expect them to stay here forever.
Losing one or two staff is not a problem. In fact it is a good thing in the sense that they bring with them the skill that we require, so this is one way we extend our influence into the market.
Q: Mr Lee, you have just returned from a roadshow in Japan. Earlier you also visited Europe and North America. What did you achieve at these roadshows? A: The aim of these visits is to explain current events in the Hong Kong and Chinese securities market, because there have been a lot of misunderstanding.
A lot of [the people we visit] are just not well-informed about the Hong Kong market. So our purpose is to explain our market to them and also explain the standards we are applying, which are basically international standards.