Across The Border

ZhongAn’s resounding success likely to lure other mainland and regional fintechs to Hong Kong for listing

The mainland’s first purely online insurance platform is up 52 per cent on its IPO offer price when the shares debuted on September 28

PUBLISHED : Tuesday, 10 October, 2017, 9:21am
UPDATED : Tuesday, 10 October, 2017, 10:56pm

The huge success of an online insurer’s recent initial public offering (IPO) in Hong Kong is likely to lure more mainland and regional industry peers in search of funding, according to analysts.

Shares in ZhongAn Online Property & Casualty Insurance – Hong Kong’s biggest listed financial technology company – have soared by more than half since trading started a fortnight ago.

The company, the mainland’s first purely online insurance platform, at one point hit a record high of HK$96.1 (US$12.31) before closing at HK$90.8 on Monday, a 52 per cent rise on its IPO offer price of HK$59.7 when the shares debuted on September 28.

The company is the second largest IPO this year, raising US$1.5 billion and its resounding performance will be music to the ears of Hong Kong Exchanges & Clearing (HKEX) which runs the stock exchange, as attracting financial technology firms (fintechs) has now become its number one priority.

Hong Kong is the most logical place for the development and formation of fintechs, as it sits in the perfect spot bridging east and west
Brett McGonegal, Capital Link Investment Holdings

Hong Kong has traditionally been something of a backwater for tech listings. In the first nine months of this year, there were 98 IPOs on its two boards which collectively raised US$9.14 billion – that’s down 52.2 per cent year on year, according to Thomson Reuters.

The main board saw 50 deals worth US$8.65 billion, to take a 7.2 per cent global share, ranking it third among the world’s top stock exchanges by the amount of proceeds raised, after New York and Shanghai, both of which it had topped for the past two years.

But financial stocks represented 60 per cent of that total, while hi-tech firms accounted for just 5.1 per cent. Note, however, Thomson Reuters classified ZhongAn as a financial firm, and not a tech.

“Its recent listing could become the first of many [fintechs] to come,” said Brett McGonegal, chairman and chief executive of Capital Link Investment Holdings.

“Hong Kong is the most logical place for the development and formation of fintechs, as it sits in the perfect spot bridging east and west. It’s also perfect timing for the market to embrace fintechs, and there’s no better place to play host than Hong Kong, especially as China has so embraced online payment platforms and technological advancement in banking.”

McGonegal, however, is equally quick to warn investors to beware of the risks involved, as not all start-ups or technology firms are likely to prove as sure bets.

ZhongAn itself – which was created by two e-commerce thoroughbreds, Alibaba (via its Ant Financial Services affiliate) and Tencent, and Ping An Insurance Group – has warned it will make a substantial loss this year.

“Many great opportunities will arise at the hands of many great companies, and that’s the exciting part of the fintech revolution.

“However, investors need to remember that as in any sector, not all companies are created equal and buyers need to do their homework to separate the real deals from the pretenders,” McGonegal said.

Nick Yu Fengqi, founder of Dalian based ZCX Management Consulting, is also convinced mainland start-ups and other technology firms will now be tempted to follow suit and try their luck listing in Hong Kong.

He said Dalian churns out a lot of start-ups, thanks to its many universities and has proved a rich breeding ground for hi-tech talent.

The cost of living in the city is also way lower than in Beijing and Shanghai, and the city’s government offers start-ups rent free commercial property for certain periods, which has helped encourage a host of youngsters to set up innovative businesses in the city.

After tech start-ups reach a certain size, however, they need to quickly look further afield to develop and grow, and Hong Kong would be an ideal destination, he adds.

“Hong Kong is a very good liquid stock market. There are a lot of international investors trading there. Dalian’s an ideal venue for founders to set up their business, but a listing in Hong Kong would instantly boost their international exposure,” Yu said.

Even HKEX would admit it has largely focused too rigidly in the past on attracting bigger names to list there, and has rarely promoted itself as the perfect financial springboard for small and medium sized companies from the mainland.

“A lot of SMEs fintechs are maybe small, but they have huge potential, and they would be wise to look to HKEX to raise funds,” he said.

The exchange completed a consultation in August to launch another bourse in Hong Kong, the so-called New Third Board, with the sole purpose of attracting dual class shares, mega tech firms, or start-ups looking for a listing. A second round of consultation looks set to be launched sometime next year.

Guo Linhoi, the brains behind the mainland-based big data software products platform, China International Software & Information Service, certainly believes the Hong Kong market represents the best option for firms like his to raise funds, especially those with global ambitions.

“Shanghai and Shenzhen have stock markets, of course, but they are more domestic,” Guo said.

“But if a mainland fintech start-up is looking for international exposure, Hong Kong’s the best option.”