HK revamp regulations to attract big technology IPOs

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Over the past decade, technology has been a sector in Hong Kong’s stock market that hasn’t attracted strong interest. In fact, technology firms only accounted for 3 percent of all listing in Hong Kong last year. However, that may change soon as Hong Kong Exchanges and Clearing (HKEX) has revamped its IPO rules in a bid to play catch-up in technology IPOs.

The bourse has confirmed last Friday that it will overhaul its listing rule next year to attract technology firms.
Under HKEX’s new rules that will become effective in mid-2018, companies that are valued at HK$10 billion or above, generate at least HK$1 billion in annual revenue, and operate in businesses that are classified as new economy, can raise fund in Hong Kong.
Businesses with valuations exceeding HK$40 billion are eligible to list without the need to go through an income test, which means it can go public without any income. Any biotech firms with at least HK$1.5 billion in valuation are also eligible for listing in the city with zero profit or revenue track record.
In addition, technology companies with more than HK$10 billion in market value and are already listed elsewhere, could conduct secondary listings in Hong Kong. The new rules also note that these companies are allowed to maintain their existing shareholding structure.
Although Hong Kong is arguably one of Asia’s most important financial hub, not allowing companies to list with the dual-class share structure under the old rules had been the main reason big technology companies avoided going public in Hong Kong. Such structure is designed to give specific shareholders more voting power than others, and is a common feature among technology firms.
Mainland China e-commerce giant Alibaba Group chose to list on the New York Stock Exchange with the world’s largest IPO to date (US$25 billion) in 2014 because the Hong Kong bourse was not happy with its dual-class structure.
The Hong Kong authorities have discussed multiple alternatives to attract more technologies to list in the city for months. In June, the bourse had proposed a “Third Board” for start-ups, but the proposal is now abandoned in favor of the revamp of existing rules.
HKEX’s Chief Executive Charles Li said the authority would have all the rules ready “by the middle of 2018″.
“We may have missed some big players, but it is not too late,” said Li. “After the change in the rules, many of the Chinese companies that are seeking to list in the US may also consider listing in Hong Kong.”
Brett McGonegal, chief executive at Capital Link International, said the ability of Hong Kong to allow dual-class shares companies and attract technology firms is key to Hong Kong’s IPO market.
“The exchange needs to be innovative and prove it can adapt and evolve as fast and efficiently as the companies they wish to attract to list. There is no upside to cutting-edge technology companies listing on outdated exchanges that have not recognised the times are changing,” said McGonegal.
Hendrick Sin, founding partner of investment firm China Prosperity Capital, said he expects more technologies firm to come list in Hong Kong in the future.
“The new listing rules, combining with all these China-Hong Kong stock connect programmes launched in the past few years, are big positives,” said Sin. “There seems to be more tech firms around these days, and all these new capitals coming from China could provide greater liquidity and valuation for them.”

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