Hong Kong Wants to Win the Next Alibaba with Exchange Revamp
HKEX’s recent proposals addressed the city’s second venue, the Growth Enterprise Market (GEM), which included plans to increase the market capitalization of companies before they can list and raising cash flow requirements for IPOs. Prof. Chee-keong Low told Bloomberg News “when we created GEM we made too many waivers and no one knew what it stood for. At the start we were a bit too relaxed in our approach.”
Hong Kong Exchanges & Clearing Ltd. (HKEX) has sent a message to startup companies over the world: We want your business.
On 16 June 2017, HKEX proposed the creation of a new exchange that would allow firms to list before they have made a profit and permit dual-class shares, an issue that caused Hong Kong to miss out on Alibaba Group Holding Ltd.’s US$25 billion initial public offering. While small-cap trading in the former British colony has for years been plagued by wild price swings and low volume, a third venue would be a chance to compete with international rivals for blockbuster listings such as Ant Financial, Alibaba’s finance affiliate.
In an environment where multiple share classes are becoming more common, HKEX’s plans are an attempt to broaden the types of stocks it can attract. Pre-profit firms made up 68 percent of new listings in the U.S. last year, according to HKEX. The bourse operator will differentiate who can buy certain stocks on the new venue, with shares of companies available to individual investors forced to meet higher regulatory standards.
The proposals also addressed the city’s second venue, the Growth Enterprise Market (GEM). Plans include increasing the market capitalisation of companies before they can list and raising cash flow requirements for IPOs.
Controlling shareholders in Hong Kong will be unable to sell below their controlling stake within two years of debuting, while at least 10 percent of new GEM IPO shares must be issued to the public, HKEX proposed. Applicants from GEM hoping to move to the city’s main exchange will face tougher rules, requiring a sponsor and submission of a prospectus. The plans are an effort to stem some of the trading issues seen with GEM stocks.
In an interview with Bloomberg News, Chee-keong Low, Associate Professor in Corporate Law of School of Accountancy at The Chinese University of Hong Kong Business School, who is also a former member of the Hong Kong Exchange’s listing committee, said “when we created GEM we made too many waivers and no one knew what it stood for. At the start we were a bit too relaxed in our approach.”… Read More
This story was also reprinted by Deal Street Asia (screen capture), The Business Times Singapore (PDF) and Macau Daily Times (PDF).
Source: Bloomberg News
Date published: 19 June, 2017
Photo: MICHAEL NAGLE/BLOOMBERG NEWS