Proposed reforms will ‘kill off the IPO market’: Chamber of Hong Kong Listed Companies rejects regulator-based regime

The Chamber of Hong Kong Listed Companies is strongly opposed to proposed listing reforms, saying they would give too much power to the Securities and Futures Commission, and could move Hong Kong “backwards”.

“The current proposal is similar to the one in 2003 that gave the SFC all-encompassing control in regulatory listing matters, with power concentrated in a few hands.

“There will be no checks and balances between the SFC and the HKEX if the proposed reform goes ahead,” said Lo Ka-shui, vice-chairman of the chamber, who is also chairman and managing director of listed property developer Great Eagle Holdings.

“The proposal to let the regulators determine which companies should be listed will move Hong Kong backwards, while the world’s other markets are all moving to a disclosure-based regime.

“A regulator-based regime would not promote market development and our stock market will be further stifled which would be damaging to Hong Kong as an international centre,” Lo said.

The SFC and the HKEX last month jointly launched a three-month consultation to collect views from the market on changing the listing process.

Under the proposals, it will set up a listing regulatory committee and a listing policy committee, with equal representation from the SFC and HKEX.

The regulatory committee will handle applications deemed complicated by the exchange’s listing division. The other panel will decide on other policies, and meet every three months.

Both committees will require a majority vote in making any decisions.

Lo said such a structure would allow the SFC to dominate listing policy setting and the listing application process.

Lo was among the business heads who opposed and blocked the proposed reform in 2003 that led the HKEX and the SFC to share the work for new listing approvals.

Lo said the chamber, which represents listed companies in the city, is opposed to the reform because it would let the SFC control listing matters.

It would use the regulator’s points of view on listing matters, meaning Hong Kong would follow Singapore, which has fewer new listing.

“Look at the Real Estate Investment Trust market which is solely regulated by the SFC. It is dead. Governance rules will become overly tight,” he said.

The reforms are aimed at addressing the poor quality of some new listings in recent years, but Lo said the SFC should address this by catching the ones who manipulate the market.

The Chamber suggests keeping the current listing structure under which HKEX approves new listings, while setting up listing policies, which the SFC has the veto power to reject.

Lo said if the SFC wants to increase its influence, the regulator could add more members to the listing committee.

The committee has other market participants from lawyers, accountants, listed companies and fund managers whom Lo believes can take a more balance view to what the market needs.

He also proposed adding tighter regulations to back door listings, saying as long as companies give sufficient information to investors, this type of activity does not present any problem.

The SFC and the HKEX are planning to have another consultation to review the Growth Enterprise Market after many back door listings in which listed companies gained new investors as a short cut to secure listing status.

“There were many back door listings to help small companies to grow bigger after getting new shareholders to inject cash into the new business.

“As long as they disclose all the information to investors, I do not see any problem,” he said.

Lo said Hong Kong should move to a more-disclosure based system in which companies disclose information and let investors decide if they want to invest.

This is in contrast with SFC chairman Carlson Tong who told the Post earlier this month that Hong Kong has plenty of retail investors so it should not adopt disclosure-based system, but it should be the regulator who determines if a company is suitable for listing.

“It would only be a disclosure-based regime if investors understand their duty to make investment choices,” he said.

“Hong Kong was the world’s largest IPO market last year and in the first half of this year.

“The market is very active although there are small numbers of companies that have problems. The proposed reform will kill off the IPO market in Hong Kong. If you do not want any troubled companies, the simple solution is not let anyone in.

“This will be what happens if SFC will take full control, just like the REIT,” Lo said.

He also said Singapore and mainland China are changing their listing regimes to be more like the current system in Hong Kong, to move more listing functions to the stock exchanges.

“Hong Kong should not move in the other direction to let the regulator to take charge of listing matter,” he added.