Hong Kong’s ‘father of red chips’ calls for review of decision that saw city lose Alibaba IPO in 2014

PUBLISHED : Wednesday, 07 September, 2016, 8:38pm
UPDATED : Wednesday, 07 September, 2016, 8:38pm

Veteran investment banker Francis Leung Pak-to, known as the “father of red chips”, has called on the Hong Kong government to conduct a review into why the city lost the giant Alibaba listing to New York in 2014 and whether establishing a third board could prevent further losses in future.

“Two years after Hong Kong failed to get e-commerce giant Alibaba to list [here], nobody is taking responsibility for the loss. When I worked in the investment bank industry, we needed to have a postmortem study on why we lost an important deal,” said Leung, who is chairman of Chamber of Hong Kong Listed Companies.

“I supported Alibaba to list in Hong Kong before it decided to list in the US [because] Hong Kong did not have the right list listing rules for it. We need to review and find way to improve our system,” he added.

Leung said missing out on Alibaba, which is owner of the South China Morning Post, was a huge loss for Hong Kong given that the firm’s average trading turnover was equivalent to about HK$30 billion a day, almost half the daily turnover on a quiet day in Hong Kong.

“Losing the Alibaba listing in Hong Kong is not just about losing a single company, but it reflects that our listing environment lags behind overseas markets in attracting innovative companies to list,” he said. “Hong Kong attracted many of the biggest mainland companies to list in Hong Kong since the launch of the H-share scheme in 1993 but we lost to the US in attracting technology firms to list here.”

Having a new board with looser listing criteria may help. Hong Kong needs to have multiple markets for different types of companies
Francis Leung, investment banker

Leung said the current listing reform proposals would give the Securities and Futures Commission (SFC) more power in the listing approval process and in setting listing policies, making matters worse when it comes to developing the local market.

Leung, who brought many heavyweight mainland “red chip” companies to the Hong Kong stock market in the 1990s, including China Mobile, CNOOC, China Resources and China Everbright, said the government should appoint a department to oversee exchange operator Hong Kong Exchanges and Clearing (HKEX) in order to develop the market so that innovative company will come and list.

“Having a new board with looser listing criteria may help. Hong Kong needs to have multiple markets for different types of companies,” Leung said.

While Hong Kong was the largest initial public offering market worldwide last year, and held that title from 2009 to 2011, it lost out to New York in 2014 when Alibaba opted for a listing in New York which allowed dual share structures that were banned by Hong Kong authorities on the basis that they are not fair to all investors.

HKEX chief executive Charles Li Xiaojia said last Thursday he would explore all possibilities for market improvements, including a new third board to attract tech firms. This came after Singapore last week gave the go ahead for a consultation process aimed at introducing dual share structures.

Leung said the joint reform consultation between the SFC and HKEX scheduled for completion on September 19 would seriously damage the market driven structure in Hong Kong and risk letting the SFC over regulate the market.

SFC willing to listen to all sides in listing reform consultation

“The reform is not a minor change but will substantially reduce the power of the listing committee and give the SFC control of listing affairs. It’s just like letting compliance staff on the front desk to make deals. This will not bring any business and will damage the Hong Kong capital market,” Leung said.

The proposals would create two new committees – a listing policy committee and a listing regulatory committee – with equal representation from both sides to approve complicated new listings and set new policies.

The SFC aimed to introduce the reform to speed up the approval process and enhance decision making, but listed companies, accountants and stockbrokers are opposed to it.

The rising tide of opposition led SFC chairman Carlson Tong Ka-shing to soften his tone in an interview with the Post on Tuesday, saying the SFC “will be open-minded to changes suggested by stakeholders”.

David Lau, managing director and head of global investment banking for JPMorgan, said the current listing committee works well and doesn’t need big changes.