Hong Kong’s proposed third board needs to work as ‘stepping stone’ in order to succeed, analyst says
How well Hong Kong’s proposed new third board functions as stepping stone to a main board listing could be a determining factor in its success, according to Edward Au, co-leader, national public offering group at Deloitte.
The more the proposed board functions as a pathway to enable companies to ascend to the prestigious main board, the greater its drawing power as a home for start-ups and other large tech companies, Au said.
To help smooth the process, he urged for company disclosure to be of a higher standard than that of the main and GEM boards.
China new third board, known officially as the National Equities Exchange and Quotations (NEEQ), has developed rapidly through several layers of reforms but company disclosure and regulation still follow a different set of rules from companies that trade on the main board in Shanghai. This means companies will face difficulty moving up to the main board when they grow larger.
In contrast, Hong Kong’s GEM board was able to reposition as a stepping stone towards the main board because the company disclosure and foundations use the same set of rules.
“The number of listings on the potential new board may be boosted if it is implemented in a similar fashion to the GEM,” Au said.
The number of listings on GEM in the first half of this year has risen to its highest level since the inception of the board in 1999, Au said. A total of 35 companies raised a combined HK$2.5 billion (US$320 million), the largest amount raised in the first half since 2000.
GEM is positioned for listing small and medium companies, while the main board is geared towards large companies. The proposed third board is for new economy and technology companies. It will also accept companies with a dual share structure if transparency, investor risk protection, and regulation is raised.
Hong Kong Exchanges and Clearing, which runs the stock exchange, earlier this month issued a public consultation on the proposal to launch a third board, after the main board and growth enterprise market, with more flexible rules to attract tech firms.
The new board will have two markets, one for large companies that match all the main board requirements but who cannot list here because they have dual-class stock structures, while the other will be for start-ups.