How US-China tensions are pushing US-listed Chinese tech firms to Hong Kong
- Growing geopolitical rivalry, increasing US investor suspicion of Chinese firms and a more attractive HKEX following years of reforms are feeding a growing trend of ‘repatriation’
- Expect not just more secondary listings in Hong Kong, but also US delistings and Hong Kong relistings
In light of the US-China situation, expect more, if not accelerated, repatriation activities over the next one to two years. Many factors affect where companies choose to float their shares, and a key consideration, particularly for the initial public offering, is pricing/valuation, of which the interest of the general investing public is vital.
However, some would argue that the biggest factor driving the return of US-listed Chinese companies to the Hong Kong market is probably geopolitics.
Rising tensions between the two nations has undoubtedly influenced the decisions of Chinese issuers leaving or seeking a secondary Hong Kong listing. It is a market much closer to home, where investors and regulators have a much broader and commercial understanding of the mainland Chinese market.
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Hong Kong has always been a leading choice for Chinese enterprises seeking an IPO, mainly due to the significant international investor interest the HKEX can attract, given limited foreign investor access to the mainland market. However, it is the HKEX’s many critical reforms that have provided a strong impetus for many leading Chinese technology companies listed in the US to return (or at least partially) to Hong Kong.
Now, given the geopolitical tensions, industry participants generally expect to see more returnees over the next 18-24 months.
Meanwhile, the process involved in a secondary listing is not much more complicated or overwhelming than Chinese issuers endured the first time. These issuers, and their management, already have considerable familiarity with the IPO process, and will be better prepared for the public disclosure demands.
Another plus for Chinese companies moving closer to home is that compliance and maintenance is, in general, stricter for listings in the US compared to Hong Kong. Although those seeking a secondary listing still need to abide by US rules, this is a nominal cost, considering the potentially substantial proceeds that can be raised.
In the near term, this is probably the limit as far as “moving back” to Asia is concerned for US-listed Chinese companies. It will be interesting to see, longer term, a trend of companies returning to the mainland and A-share market. This is likely to be just a matter of time, and we have already seen some cases – not necessarily from the US, but from other markets including Hong Kong.
In recent years, many start-ups have abandoned their offshore structures and plans to list in foreign markets, too. Until there are more market reforms on the mainland, Hong Kong, in the near and medium term, will continue to benefit from this “Go East” trend.
Kenneth Lee is head of global entity management services at TMF Hong Kong