Hong Kong’s introduction of a new channel for specialized tech companies to be listed on the motherboard is likely to be a boon for the stock market, as it is likely to attract mainland Chinese tech companies, but experts in the industry are calling for the HKEX to balance investor protection and fundraising opportunities. carefully.
On Oct. 19, Hong Kong Chief Executive John Lee delivered his first political speech since taking office in July. It devoted a section to improving Hong Kong as an international financial center, which included revising motherboard listing rules to “make it easier to raise funds from high-tech companies that don’t have still meets the requirements for profits and business registration”.
Lee also said the HKEX will “revitalize” the Growth Enterprise Market (GEM) – a program that has a lower listing eligibility criteria (compared to motherboard) for small and medium-sized businesses.
On the same day, the Hong Kong stock exchange released a consultation paper that would open a new channel for specialist technology companies to list on the motherboard.
This included the division of specialist technology companies into commercial and pre-commercial companies, with higher requirements for pre-commercial companies due to their risk profile. For example, the minimum market capitalization expected at listing is proposed to be HK$8 billion for commercial companies and HK$15 billion for pre-commercial companies.
Industry experts have generally said Asian investor that the revision of the listing rules to facilitate the financing of high technology companies was necessary and they widely welcomed this decision.
“The development can be well understood, given the growing strategic importance of HKEX for China. While the HKEX aims to continue to serve the global capital market on a potentially larger scale, it also has a strategic role to fulfill in light of China’s future growth trajectory and the related need to secure a secondary market. that works well in Hong Kong,” Cheung said. Chilok, portfolio manager and strategist for delegated investment solutions at Mercer said Asian investor.
“The proposed set of rules opens wider doors for specialist tech company listings, which are seen as important at a time when the political focus is on tech security,” he said.
Mainland Chinese tech companies with US primary listings are considering Hong Kong secondary listings or changing their US primary listing status to SAR amid US-China tensions. But a fifth of Chinese companies listed in the United States are not currently eligible for listing in Hong Kongaccording to a report from the South China Morning Post.
With the new listing rules, “companies whose ADRs [American Depositary Receipts] facing possible delisting in the United States will no doubt consider Hong Kong as a possible alternative,” Cheung said.
The set of investment opportunities for asset owners will be expanded if Hong Kong succeeds in attracting “a significant number of specialist technology companies”, he said.
He added: “This will add diversity to the Hong Kong equity investment universe. This not only attracts capital flows and improves market liquidity, but also expands the range of investment opportunities for asset holders, which in turn improves diversification.
However, he also warned that “favorable listing rules are only one of the preconditions to incentivize specialist technology companies to list in Hong Kong. The reputation of regulators, the legal system, liquidity and size capital market potential are also critical”.
“Additionally, there are always company-specific reasons that determine the preferred location for listing, such as political risk and tax considerations,” he added.
Asset owners were hoping for policies that support sustainable economic growth and a stable financial market, which the policy addressed to some extent, he said.
However, other market participants said they hoped for an easing of Covid restrictions, particularly quarantine restrictions between Hong Kong and mainland China. Political discourse also revealed several measures such as relaxing visa and hiring rules for non-residents, but the industry responded with a cautious welcome.
“I’m not sure if that’s attractive enough,” said a senior director at a Hong Kong asset manager. Asian investor. “Historically, it’s never been difficult to get a Hong Kong work visa to be honest, so it’s probably more sound bites [for publicity] than rooted in reality.
INVESTOR PROTECTION VS CAPITAL RAISING
However, the senior director agreed that the change in listing rules was “good for many nonprofits,” but that “HKEX will need to strike a balance between protecting investors and making it easier to raise capital. But overall, it can improve the attractiveness of the Hong Kong stock market.
Eddie Wong, capital markets services partner at PwC Hong Kong, agreed. “Most of these companies have potential and are on the radar of many institutional investors,” he said.
“Regulators should consider the unique characteristics of these companies and adapt a new listing regime that allows for the listing of advanced technology companies that cannot otherwise meet current listing requirements without compromising shareholder protections. “, did he declare. Asian investor.
He also welcomed the repositioning of the GEM program. “It will help SMEs and start-ups increase funding channels,” he said. “Furthermore, we agree that Hong Kong should accelerate the development of more RMB-denominated investment opportunities, so as to strengthen Hong Kong’s advantage as the largest offshore RMB business center and promote the internationalization of the RMB.”
FAMILY OFFICE TAX RELIEF
During the policy speech, Chief Executive Lee also said the government will introduce a bill this year to provide tax relief to eligible family offices, with the aim of attracting 200 family offices to establish or expand their business in Hong Kong. Kong by 2025.
However, reactions were more mixed to this decision.
Veteran asset management consultant Stewart Aldcoft said Asian investor that it was well received “because it is an area where a big effort is made to win this type of business but most go to Singapore as the tax advantages in SG are better”.
“Furthermore, mainland Chinese families are even more likely to move to Singapore than to Hong Kong, as they now consider Hong Kong to be part of China. Therefore, if they want their assets out of range from China, Singapore is preferable,” he said.
The asset management firm’s senior director was a bit less optimistic, and Mercer’s Cheung said more should be done to attract family offices.
“Taxation is already low here, and what is more important is the free movement of capital and the legal consequences, than taxation. The tax in Singapore is also low,” the asset manager said.
“It should be noted that there is great diversity among single family offices due to their unique set-up and source of wealth accumulation. It clearly takes more than just tax breaks to get family offices to choose Hong Kong,” Cheung said.
Additional reporting by He Shusi.
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