HK exchange overhaul days away

Analysts suppose the market changes not in conflict with mainland's CDR role

Financial analysts contend that allowing dual-class company listings in Hong Kong should not compete with the proposed launch of Chinese Depository Receipts on the mainland, as the two different markets can attract different batches of enterprises for share listings.

Three new categories of enterprises will qualify to be listed on the main board of the Hong Kong Stock Exchange in the wake of the biggest overhaul of its initial public offering rules in two decades, part of efforts to lure prominent new economy companies to its fold.

As of next Monday, enterprises with a dual-class shareholding structure or weighted voting rights; biotechnology companies that have yet to take in revenue; and companies that are already listed overseas and plan to seek a secondary listing in Hong Kong, can apply to list in the city.

"For enterprises, Hong Kong's equity market is more internationalized, whereas the mainland market relatively is still closed," said Patrick Shum Hing-hung, investment manager at Tengard Fund Management.

"Second, mainland financial regulatory bodies may halt the process of IPOs amid weak stock market sentiment whereas IPO halting seldom happens in Hong Kong. Startup companies in need of capital may not risk listing their shares in the mainland market," Shum told China Daily.

Shum expects that companies such as Alibaba Group Holdings may seek listings on both the Hong Kong and mainland bourses, as he considers that there is no competition between two markets.

The overhaul comes on the heels of the Chinese mainland's decision last month to launch the CDRs as part of efforts to further open up the capital market, encouraging companies that are listed abroad to return to the mainland's A-share market.

"Together with the upcoming mainland CDRs, Hong Kong's new listing will increase companies' flexibility to use IPO platforms in Hong Kong and the mainland to raise capital, positively impact development and complement capital markets in both places," said Benson Wong Wai-bong, PwC Hong Kong Entrepreneur Group leader, and Eddie Wong Kam-chin, PwC Hong Kong Capital Markets Services partner.

Billy Mak Sui-choi, associate professor at Hong Kong Baptist University's Finance and Decision Sciences Department, said while listings in Hong Kong can offer flexibility to enterprises on how to allocate proceeds from fundraising, conducting IPOs on the mainland also has its advantages.

"Listings on the mainland can make the country's vast retail investors further familiarized with company brands, further pushing up the valuation level of companies that can raise the fundraising amount," Mak told China Daily.