China’s ‘third board’ emerges as threat to Hong Kong’s IPO market

More start-ups are cancelling plans to go public in Hong Kong and choosing instead to join the mainland’s National Equities Exchange and Quotations (NEEQ) – known as the “new third board” – especially now that the securities regulator has split the market to emulate the US Nasdaq system.

China’s securities authority last Friday officially divided the over-the-counter NEEQ into two levels. Companies with a robust financial performance, or bigger market capitalisation, will be listed on the higher “innovation level” to set them apart from other companies at the “basic level”.

Analysts said that since the “innovation level” will attract a bigger flow of capital and push up turnover, it could prove a magnet for quality companies to list, particularly at a time when the mainland regulator is putting the brakes on approvals for initial public offerings (IPOs) on the established Shanghai and Shenzhen bourses.

Philip Hao, chief executive of Learning without Borders, a London and Shenzhen based international education service platform, said he restructured his company to fit mainland market listing requirements, after dumping an original plan to go public in Hong Kong, where turnover has been tepid in recent weeks.

When Hao expanded the business from London to China in early 2015, he had planned to list the company in Hong Kong and registered a parent company in the city. But he changed his mind late last year and merged the Hong Kong based parent into the company’s mainland assets.

“It was a simple choice [because] the mainland NEEQ market gives a higher valuation with lower threshold, and the cost is also cheaper,” Hao said, adding that financial and legal costs for a NEEQ listing were one-tenth of that for a Hong Kong IPO.