The 'new economy' takes the floor

Asia's leading stock exchanges swing into top gear with groundbreaking listing overhauls to lure tech enterprises

As the tech revolution continues to grip the globe, major bourses across Asia have been flexing their muscles and priming the pump with dramatic shakeups of their listing protocols to embrace technology enterprises and get them to the trading floor.

The focus has been on the Chinese mainland, Hong Kong and Singapore stocks exchanges as they grapple with how to lure the big players to their fold. Market pundits assert it won't be a zero-sum game. Rather than bidding to edge each other out, they would be complementing one another by backing technology companies' IPOs to their own advantage, they believe.

The China Securities Regulatory Commission (CSRC) — the mainland's securities watchdog — fired an eye-catching salvo on March 30 this year, unveiling a pilot program that calls for a lifting of some of the rules to make way for tech "unicorns" to issue new shares and Chinese Depositary Receipts (CDRs), or stock trading certificates that bear similarity to the US-traded American Depositary Receipts (ADRs), on the mainland as part of efforts to further open up the capital market.

Companies targeted include those with high stakes in the internet, big data, cloud computing, artificial intelligence, software and integrated circuit fields, as well as in high-end equipment manufacturing and biological medicine.

The Ministry of Science and Technology, in particular, has pinpointed 164 "unicorns" with a combined valuation of $628.4 billion yuan. Leading the pack are Ant Financial — an affiliate of Hangzhou-based tech titan Alibaba Group; Beijing-headquartered ride-sharing giant Didi Chuxing; and Beijing-based smartphone maker Xiaomi, which is expected to be the mainland's first tech floated under a new weighted voting rights structure and reportedly eyeing a listing in Hong Kong next month.

Enterprises that are yet to be listed overseas can apply for an IPO on the strength of having posted at least 3 billion yuan in revenue in the past year and are valued at 20 billion yuan or above. Even if they fail to meet these requirements, they still can apply if their business income registers fast expansion and have developed independent and advanced technologies, according to the CSRC.

For technology greats already floated abroad and are operating on the Chinese mainland with a capitalization of not less than 200 billion yuan ($31.7 billion), the CSRC will accept CDR applications to help them return to the A-share market unhindered, as most of them do have dual-class share or Variable Interest Entity (VIE) setups that are not accepted domestically.

But, Goldman Sachs says only five of the mainland's offshore-listed companies with market capitalization of more than 200 billion yuan qualify — Tencent Holdings, Alibaba, Baidu, JD.com and NetEase. Besides, the investment bank found that the CDR requirements would leave the door open to them for a possible second listing in Hong Kong.

"In the past, companies listed in the US, for example, would need at least three years and 22 billion yuan to unwind their VIE structures or rejig their shares to be in the same class and return to the mainland market. But now, CDRs will offer them an easier and cheaper channel for an onshore listing," according to a report by Ren Zeping, vice-president and chief economist with property developer Evergrande Group.

The Hong Kong Stock Exchange — Asia's third-largest bourse in terms of market capitalization after the Tokyo Stock Exchange and the Shanghai Stock Exchange — is also revamping its IPO rules to allow technology companies with a dual-class structure to float. The new rules are likely to come into force after the end of the consultation period in late April. Xiaomi, said to command a valuation of $70 billion, is reported to be among the first batch of companies to list after the planned reforms.

Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing, which runs the city's bourse, called the proposed CDRs for the A-share market a breakthrough in the mainland's capital market. He's convinced it will not threaten the Hong Kong stock exchange's position because Hong Kong and the mainland enjoy a long-term cooperative relationship — the more open the mainland is, the better for the SAR.

"Hong Kong has been acting as a connector between the mainland and overseas markets for years. Under 'one country, two systems', the China Securities Regulatory Commission and Hong Kong's Securities and Futures Commission have fostered a close relationship. I believe the IPO reform in both markets could indeed serve the country's real economy, achieving a win-win result," Li told the China (Shenzhen) IT Leader Summit 2018.

Global banking giant Citigroup said in a report the mainland's CDR scheme would not have much of an impact on the prospects of the Hong Kong stock exchange as the threshold for a dual-class structure in Hong Kong is lower than the CDR requirements on the mainland.

Singapore Exchange Ltd (SGX), which has been running the Lion City's bourse since 1999, may also allow technology companies with a dual-class structure to list. The first round of consultations started last year and will be followed by another round on the key framework and rules later this month, according to report by Business Times on March 22.

SGX Executive Vice-President Chew Sutat has revealed that a couple of Hong Kong companies with a "multi-billion-dollar market cap" intend to list in Singapore in July and August this year, including one with a dual-class listing structure and has operations in Hong Kong, Southeast Asia and the Chinese mainland.

"We see ourselves playing an offshore complementary role in emerging markets in Asia. That includes the Chinese mainland and, to a certain extent, Hong Kong companies that are looking to expand overseas," Chew said.

Li threw out concerns about the Lion City's threat, saying he welcomed the reform in Singapore and stressing that the Hong Kong market only compares itself with those of the mainland and the US.

"No one wants to lag behind in the technology era and, as you can see, great companies had emerged in the technology sector in the past few years, especially in the United States. Asian countries are trying their best to support technology companies," said Bill Li Zhi-yong, chief strategist at Hong Kong-based business advisory firm Harmony Capital.

In his view, technology enterprises generally consider two things when choosing a listing venue — the cost and the market's recognition of the company's long-term value, which is reflected in the valuation.

The advantage of the Hong Kong market lies in the lower revenue threshold and the relatively simple and quick listing process. It also offers companies ready access to overseas funds, while the mainland market prides itself on high valuation, as well as government support, said Li.

"Previously, technology companies would prefer to seek a listing in the US, but now, they have more choices. They can choose to go public on the Hong Kong stock exchange at first, and then issue CDRs on the mainland so that they could enjoy the benefits from both sides, policy support from the mainland and the link-up to foreign capital," Li added.

Hong Kong, which saw Jack Ma Yun's Alibaba Group scuttle a listing in the city in 2014 in preference for the US, where the e-commerce behemoth raised $21.8 billion in a record IPO in the country, seems to have sprung back to heal the wounds.

Beijing-based Meituan-Dianping — the mainland's largest provider of on-demand online services which was previously reported to be mulling a flotation in the US — is now seeking a Hong Kong listing that's likely to occur as early as later this year, according to Reuters, citing people familiar with the matter.

Peter So Kwok-kin, head of CCB International Securities, told China Daily that CDRs involve issuing depository receipts on the mainland for shares already listed in another stock exchange, such as in Hong Kong or the United States, thus, it will not substantially affect Hong Kong's attraction for technology companies seeking the first listing in the city although mainland liquidity flowing into Hong Kong may be reduced as part of it will be plowed into CDRs.

"And, if the technology stocks are domiciled in Hong Kong or overseas, the companies may prefer to seek a listing in Hong Kong, like red chips, if they are from the mainland. For this category of shares, they can get a listing in Hong Kong and issue CDRs in future," he added.

Contact the writer at cherrylin@chinadailyhk.com