HKEx’s Li looks to smash HK IPO record

A controversial shake-up of the city's listing regime sees the bourse operator expecting a "crowded" deal pipeline. It's preparing to staff up to cope with the demand.
Charles Li expects an IPO boom this year (photo provided by HKEx)
Charles Li expects an IPO boom this year (photo provided by HKEx)

More companies than ever before are speaking to Hong Kong Exchanges and Clearing (HKEx) about listing on the bourse, its chief executive said on Wednesday as he hailed plans for a new regime intended to make it easier for growing companies to conduct initial public offerings in the city.

HKEx chief Charles Li said companies were already inquiring about listing under the new regime, first proposed in June. It aims to launch a detailed consultation in the first quarter so the new rules can kick in from June this year. And HKEx is already looking to staff up, making an "exceptional" budget provision to add headcount in its listing division to cope with the rush of traffic.

Last year, a record 174 companies came to list on the bourse – although a lack of blockbuster deals saw the city lose its crown as the world's busiest IPO market.

“I think this year hopefully we’ll break that number,” Li said told reporters on Wednesday as he concluded the bourse’s 2017 achievements and outlines key focuses for 2018.

He said there were now more companies visiting the exchange “than ever before” to discuss potential issuance. While he would not offer a pipeline of likely issuers when asked by FinanceAsia, Li said the companies were interesting and different to those who had listed before.

“We sort of have some ideas, [having seen] some representatives of those companies, but until their applications are in, we don’t really know whether they will be in or not,” Li said. 

“The goals of our strategic plan are to make our IPO market more relevant, our equity market more connected, and our derivatives market more competitive,” said Li, adding “completing the listing reform is one of our top proprieties in order to secure our relevance as a premier global capital formation centre.”

But Li is confident it will be a “crowded” pipeline and as a result, “we will have to add more people,” he said after FinanceAsia asked about the exchange’s staffing capability and level of industry sophistication to cope with the traffic and new business models.

“When we did the budget last year, it was quite tight… but I think one exception we’ll make this year is to add more people to our listing division,” Li said. The upcoming listing officers will likely come from banking, legal and possibly accountancy backgrounds, and ideally have experience with new economy industries, according to Li, who did not give the number of new headcounts that will be added.

Of particular interest to institutional investors is the city’s plan to embrace companies that are set up in a dual-class shareholding structure, which typically gives founders and senior managements a larger say in decision making than other shareholders.

HKEx released a concept paper last June, proposing a new listing regime that allows companies listing in the city to retain weighted voting rights (WVR) – which contradicts Hong Kong’s conventional “one share, one vote” principle, and includes dual-class voting rights as the most common form. It came as Hong Kong endeavoured to race Singapore and New York, among others, to capture the rise of so-called “new economy” companies, especially from China.

Institutional investors and corporate governance campaigners expressed concerns over the structure – often used by founders of start-ups to retain effective control over the company without holding a majority shareholding. Yet HKEx was able to push the proposal through. In December, it announced plans to add two new chapters to its main board listing rules to allow companies with WVR structures, and biotech issuers that are yet to make revenue or profit.

“We are working very hard trying to come up with the detailed rule consultation; we are hoping to launch the consultation definitely in the first quarter, and hopefully after the Chinese New Year,” Li said, adding the targeted time for publishing the finalised new rules was the beginning of June, after collecting market feedback.

“We probably will begin to take [IPO] application right after the end of June,” Li said, as this would give a month for market participants to understand how the new rules work.

However, he dismissed comments that the exchange was betting on allowing dual-class shares to appeal to issuers. “It’s not WVR companies that give us additional new attractions,” Li said.

“WVR is not naturally superior than anything else; if anything else, it’s actually presenting greater regulatory challenges. So WVR is something we accept – it’s a risk, but we accept that this market has to be able to manage it. But it should not be a risk that we use as an excuse for refusing this group of companies to potentially find their home here."

“So it’s really about new economy companies, companies with dynamism and great innovation sprit... and they will naturally attract the imagination of investors,” Li concluded.

HKEx last year lost its title as the world's most lucrative IPO venue, ranking behind the New York Stock Exchange (NYSE), Shanghai Stock Exchange, and Nasdaq. It priced around $14.3 billion worth of new issuance, comparing to the NYSE, which priced a total of $33.6 billion, according to Dealogic data.

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