Hong Kong exchange to accept listing applications under new rules from April 30, chief says

Charles Li Xiaojia says results of a consultation into reform of listing rules to be announced on April 24

PUBLISHED : Friday, 20 April, 2018, 10:15am
UPDATED : Friday, 20 April, 2018, 11:38pm

Companies with dual-class shareholding structures and biotech firms with no revenue will be able to apply for listing on the Hong Kong stock exchange from April 30 under new bourse rules, the head of the exchange said on Friday.

Hong Kong Exchanges and Clearing (HKEX) chief executive Charles Li Xiaojia told a forum on Friday that the results of a consultation into reform of the bourse’s listing rules would be announced on April 24, with the new rules “becoming effective the Monday after”.

The exchange has been planning a major overhaul of its listing rules as it tries to catch up with New York and Shanghai and others in the race to be the world’s largest market for initial public offers. It has previously not allowed listings by companies with dual-class share structures, making it less attractive to big technology firms, many of which use such governance forms.

“This will be the largest listing reform in Hong Kong for 25 years,” Li said, noting that companies with different classes of shares often took their listings to the US instead.

“After the reform, it will change the regulatory landscape. I am comfortable Hong Kong will be able to attract these companies to list here,” he said.

When the new rules go into effect, biotech firms that have yet to generate revenue, as well as Chinese technology companies seeking secondary listings in Hong Kong, would also be able to apply for listings, Li said. He has previously said the exchange had set a goal of overtaking the Nasdaq market within five years in terms of the number of listings of mainland Chinese biotechnology firms.

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He expressed confidence that big name companies reportedly seeking listings, including Chinese mobile phone maker Xiaomi, oil company Saudi Aramco and Chinese online payment firm Ant Financial, would list in Hong Kong, and did not see plans by China to create China depositary receipts (CDRs), similar to American depositary receipts, to lure tech firms home as a threat to Hong Kong.

“According to my understanding, Ant Financial does not have a weighted voting right structure, so it is qualified to list A shares in China and H shares in Hong Kong,” he added.

Ant Financial is an affiliate of Chinese e-commerce giant Alibaba, which decided in 2014 to list in the US and not Hong Kong, where its dual-class share structure was not accepted at the time. The loss of the listing – worth US$25 billion – was the spark for debate in Hong Kong over listing rules.

Li said Alibaba could now apply for a secondary listing in Hong Kong, something the company’s founder, Jack Ma Yun, said in January he would “seriously consider”.

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Even if Alibaba opted for a CDR listing in mainland China, it would be an advantage if it also listed in Hong Kong, Li said, because Chinese investors could trade the physical stock directly via the Stock Connect scheme that links mainland and Hong Kong bourses, while international investors could arbitrage on the price differences between the US and Hong Kong listed stocks.

Li also saw Xiaomi as taking a similar tack, listing in Hong Kong as well issuing CDRs in mainland China.

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The Hong Kong exchange would also welcome technology firms that are now listed on China’s National Equities Exchange and Quotation (NEEQ) for smaller companies, also known as the “new third board”, Li said. They would not have to delist from that board in order to list in Hong Kong, he said, giving Hong Kong an advantage over Shanghai and Shenzhen, which require a delisting.

The announcement of the results of the review into listing rules would come one day before the annual shareholders’ meeting of HKEX, at which its chairman, Chow Chung-kong, will step down. he had pushed for reform to be implemented during his term.

Christopher Cheung Wah-fung, lawmaker for the financial services sector, said the mainland’s CDR scheme is unlikely to be launched until the end of this year as the authorities are working on the finer details.

“With HKEX accepting listing applications from April 30 it would much faster than the mainland’s CDR scheme. In addition, the mainland’s requirements for companies to qualify for listing by way of CDRs is expected to be much for stringent than the HKEX.

“And since the Hong Kong stock market is traded by international investors, I believe more mainland technology giants would opt for a listing in Hong Kong than issuing CDRs.”

Alibaba owns the South China Morning Post.