The tailwinds lifting the Hong Kong bourse’s prospects are blowing from east and west: China is applying heavy scrutiny on overseas listings as well as its homegrown exchanges, sending companies to consider going public in the Asian financial hub.
Logistics and delivery firm Lalamove is the latest weighing moving its US initial public offering plan to Hong Kong, following Beijing’s pledge to tighten cybersecurity oversight that could block startups from holding first-time share sales outside the country. China’s stricter screening for its Nasdaq-style STAR board has also prompted companies such as Neusoft Medical Systems to switch to Hong Kong.
“The bulk of offshore listings are still happening in Hong Kong, so there might be a trigger for more listings,” said David Chin, head of investment banking for Asia Pacific at UBS Group AG.
The prospect of capturing rerouted activity helped make Hong Kong Exchanges & Clearing the world’s top-performing major bourse this month. The stock has gained nearly 10% in July to beat 11 of its peers with a market value of US$10 billion and above, according to data compiled by Bloomberg.
It isn’t just Chinese IPO hopefuls that are looking to the city to raise funds. Hong Kong’s financing flexibility and the availability of offshore capital are drawing many A-share listed companies to seek a second listing there, according to Tucker Highfield, co-head of Asia Pacific equity capital markets at Bank of America Corp.
China Tourism Group Duty Free Corp is planning a second listing in Hong Kong that could raise at least US$5 billion, potentially one of the year’s biggest in the city. Shenzhen-traded cosmetics manufacturer Yunnan Botanee Bio-Technology Group and biomedical product maker Imeik Technology Development are seeking to sell shares in Hong Kong.
“It’s quite flexible to go into a top-up placement and do a convertible bond in Hong Kong, compared with the requirements in the A-share market,” Highfield said.
Hong Kong’s relatively streamlined listing procedures are another attractive feature. In China, it could take a company months to win regulatory approvals, price the deal and finally debut. China Three Gorges Renewables Group, the year’s biggest IPO in China, first announced its intention to list in April 2020 and only started trading in June this year.
Chinese regulators’ moves in the last two weeks are also tipping the scales in Hong Kong’s favor.
Even after then-US President Donald Trump signed a measure into law in December that could delist Chinese firms from American exchanges in a dispute over accounting rules, Chinese companies still managed to raise nearly US$13 billion through first-time share sales in the US this year, data compiled by Bloomberg shows.
In the wake of Didi Global's US$4.4 billion US IPO and China’s subsequent crackdown, authorities in Beijing are proposing giving themselves the power to block a Chinese firm from listing overseas even if the unit selling shares is incorporated outside China -- a threat that makes a Hong Kong offering a safer, while still technically offshore, alternative.
Companies raised US$32 billion through Hong Kong listings in the year to date, nearly double last year’s total by this point in the year and a record for the period, data compiled by Bloomberg show.
Even as it stands to attract more aspirants, Hong Kong’s listing rules are getting tighter, said Sharnie Wong, an analyst at Bloomberg Intelligence. “Requirements are more relaxed in the US,” Wong added.
In May, the exchange toughened its profit requirements for listing on the main board starting in 2022. The regulations include a minimum aggregate profit threshold of HK$80 million (US$10 million) in the company’s three most recent financial years.
Still, Chinese companies that had aimed for U.S. markets will find Hong Kong easier to navigate than Shenzhen or Shanghai.
“It’s unlikely that a lot of these companies can meet the domestic listing requirements,” said UBS’ Chin.
