Hong Kong’s GEM board needs more radical reform as proposed changes fail to address IPO drought, industry players say
- High fundraising costs, a lengthy vetting process and uncertainties about approvals have turned smaller firms away from Hong Kong’s moribund secondary board
- Bankers and brokers call for more radical reforms for GEM, such as setting up a new board or allowing easier takeovers
Bourse operator Hong Kong Exchanges and Clearing (HKEX) has not gone far enough in its planned revamp of the city’s second board to enable smaller companies to raise funds from the public and end a three-year drought in initial public offerings (IPOs), industry observers said.
A regulatory overhaul is needed to entice small and medium-sized enterprises (SMEs) to raise funds on and speed up the IPO process at GEM, the exchange’s second board formerly known as Growth Enterprise Market, according to the Association of Hong Kong Capital Market Practitioners (HKCMP). Easier rules are also needed to support back-door listings and promotion to the exchange’s Main Board, the Institute of Securities Dealers said.
HKEX, which runs the third-largest stock market in Asia, completed a six-week public consultation earlier this month. Its proposed reform measures include adding an alternative eligibility test, removing mandatory quarterly reporting intervals and streamlining the process for transferring listings to the Main Board.
“Whilst they are a move in the right direction, we do not think that the current proposals are really sufficient or [are] going to do very much for the GEM market,” said Arnold Ip, HKCMP’s chairman. “This market will not fully recover, unless there is a change in the regulatory framework, where smaller companies and growth companies are actually welcomed and their listing applications dealt with efficiently and quickly.”
GEM was established in 1999, making room for companies that did not meet tougher Main Board requirements. It currently has 328 listings with a combined market capitalisation of HK$53 billion (US$6.8 billion), or 0.2 per cent of the city’s total.