HK looks to lure more floats with new IPO rules

With the city facing rising competition to attract initial public offerings, the Hong Kong stock exchange is proposing two chapters of new rules to existing listing ones.

Hong Kong lost its spot as the world's top IPO fundraising venue in 2017. In response, the Hong Kong Stock Exchange is aiming to attract more high-quality emerging and innovative companies to launch IPOs in the city.

It unveiled the proposed changes in mid-December, which would allow the listings of technology companies with a valuation of at least HK$10 billion ($1.28 billion) to involve multiple classes of shares, as well as pre-profit biotech firms, subject to additional disclosures and safeguards. The details of the new rules will be put up for formal public consultation in the first quarter of this year.

A dual-class stock structure gives one set of shareholders greater voting rights than others. This approach has been favored by many companies in the tech industry, with the extra voting power given to top executives seen as protection against pressure for short-term returns.

Market insiders said they expect the new listing rules to help the city to maintain its status as a global IPO center, but that the effect in the short-term is not so clear.

"The introduction of a dual-class stock structure is expected to attract about 100 unicorn companies in the technology industry to seek listings in Hong Kong, including mainland's ride-hailing giant Didi Chuxing and Alibaba's Ant Financial Services Group," said Edward Au, co-leader of the National Public Offering Group of Deloitte China.

He said that the first batch of companies with dual-class stock structures are expected to go public in the third or the fourth quarter this year, so the effect remains to be seen.

The introduction of dual-class shares will definitely help the IPO market in Hong Kong to some extent, said Peter Chan, assurance partner at EY Hong Kong, but there will not be any major influence on the market because issuers pay more attention to the performance of the stock market and its returns.

According to Pamela Chung, managing director of Computershare Hong Kong, most new-economy companies are from the Chinese mainland, so Hong Kong has a geographical advantage in attracting these types of companies. If the first batch of companies with dual class stock structures perform well in the market, investor enthusiasm will be ignited under the snowball effect, she added.

The Hong Kong Stock Exchange has also proposed modifying existing listing rules in relation to overseas companies to create a new concessionary secondary listing route, aiming to attract issuers from emerging and innovative sectors that have primary listings on leading overseas stock exchanges.

Since Hong Kong missed out on technology giant Alibaba Group's $25 billion IPO in 2014, the city's bourse has considered allowing dual-class shares and other measures to accommodate up-and-coming companies.

Local media reported that Carrie Lam Cheng Yuet-ngor, Hong Kong Special Administrative Region chief executive, told Alibaba Chairman Jack Ma that she hopes the company will return to the Hong Kong Stock Exchange for share listing.