Hong Kong rolls out welcome mat for US-listed tech stocks to raise capital via secondary listings, spurring exodus from US market

Enoch Yiu
·3-min read

Hong Kong Exchanges and Clearing Limited (HKEX), the operator of the world’s third-largest stock market, said it plans to extend its 2018 rule change to attract more listed companies to raise funds in the city via secondary listings, in a move that’s likely to spur an exodus of Chinese companies from the United States.

The bourse plans to allow companies with corporate shareholders of so-called weighted voting rights (WVR) to raise funds, according to an announcement by the exchange. That would allow technology start-ups controlled by corporate entities to raise funds.

The HKEX, the world’s top destination for initial public offerings (IPOs) in seven of the past 11 years, has already seen a steady march of technology listings since Alibaba Group Holding’s US$13 billion secondary listing in Hong Kong last November. This month, the exchange scored another first by securing half of the biggest fundraising in global finance: the US$39.67 billion dual listing in Shanghai and Hong Kong by Ant Group.

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“Today‘s announcement is a breakthrough [that] will make our listing regime more competitive,” said Au King-lun, executive director of the Financial Services Development Council, a government advisory body for the strategic development of Hong Kong as an international financial centre. “The investor mix in innovative companies has changed over time, where mega technology firms are now becoming key stakeholders in other innovative companies.”

SCMP Graphics
SCMP Graphics

About 10 Chinese technology companies that are already listed on US stock markets are owned by corporate shareholders with WVR structure, where the shares have different voting rights between founder-shareholders and others.

Among them are Tencent Holdings’ music streaming unit Tencent Music Entertainment Group, and Baidu’s video streaming platform iQiyi, dubbed the “Netflix of China”. These companies can qualify for secondary listing in Hong Kong under the new rules, according to a person familiar with the situation.

The extension comes amid a cacophony of calls by US politicians to expel Chinese companies from the US capital market, as relations between the two nations have deteriorated to the lowest point in decades.

The return of Alibaba, which owns the South China Morning Post, was joined by the secondary listings of JD.com and NetEase, made possible by the HKEX’s 2018 listing reforms, the most consequential changes to Hong Kong’s listing regulations in three decades. Xiaomi the smartphone maker and Meituan Dianping the food delivery company also raised funds in Hong Kong after the listing reforms.

The expansion of the 2018 reforms also gives Hong Kong a leg up in competing with the Star Market in Shanghai, and with the Shenzhen Stock Exchange, which are both pulling out all the stops to help technology companies raise capital.

Hong Kong’s exchange secured the support from two out of three respondents in a January consultation on allowing corporate WVR shareholders to raise funds via secondary listings. The HKEX plans to conduct another round of consultation to assess whether unlisted companies featuring corporate WVR shareholders should also be allowed to raise funds in initial stock offers.

“After carefully considering the feedback from respondents, we have decided to give more time for the market to develop a better understanding of Hong Kong’s regulatory approach towards regulating listed companies with WVR structures and their controllers,” said Bonnie Chan, HKEX’s head of listing.

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