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Treasury & Capital Markets
Hong Kong exchange to loosen listing rules for tech, biotech companies
Proposed loosening of IPO rules to help the exchange compete with New York for new economy listings
Darryl Yu 19 Dec 2017

WITH reports indicating that Hong Kong is on the verge of losing its IPO (initial public offering) title this year, the Hong Kong Stock Exchange (HKEX) recently announced plans to introduce new rules for biotech issuers and issuers from emerging and innovative sectors.

Biotechnology firms that don’t have a track record of profitability and technology companies that have a dual-class share structure will be eligible to list on the exchange, according to HKEX.

“The market has made it clear that they want the exchange to take action to broaden Hong Kong’s capital markets access and enhance competitiveness,” comments Charles Li, HKEX CEO. “By the second half of next year, we hope that we will see a significant number of innovative companies beginning to choose Hong Kong.”

Allowing a dual-class share structure is HKEX’s attempt to bolster Hong Kong as a destination for new economy companies, in particular mainland Chinese companies. Dual-class shares have been a controversial topic as they give founders greater power in a company despite holding a small number of shares. The city was once a leading candidate for Alibaba’s record US$25 billion IPO in 2014 but lost the battle to New York, which allows dual-class share structures.

Nevertheless, Hong Kong recently saw an increase in technology listings under the current “one share, one vote” structure. Following the listing of Meitu last year, the city has played host to Chinese technology IPOs debuts from ZhongAn and China Literature. In contrast, Chinese technology firms which listed on the New York Stock Exchange (NYSE) have had a rougher time.

Sixteen Chinese companies have listed on the NYSE this year, and ten of them trading below their IPO prices. Shares of Qudian, the Chinese peer-to-peer lender, dropped to of 46% of the IPO price last Friday – a company record low. A law firm is currently investigating the company for exploiting students and blue-collar workers. RYB Education, another recently NYSE-listed Chinese entity, is grappling with the fallout of a child abuse scandal.

The sudden growth of new economy listings, plus the negative performance and sentiment of Chinese companies on the NYSE, has made the HKEX appear more plausible as a suitable listing location for Chinese new economy companies.

As 2017 draws to a close, key Chinese technology public listings announced by Xiaomi, Ant Financial and Didi Chuxing, will have a tougher time choosing a suitable exchange to list is as the competition heats up for new economy companies.

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