HKEX eyes third board to draw more technology start-ups to Hong Kong

Being one of the leading international financial centres, Hong Kong may need to explore emerging opportunities and to match capital with diverse types of enterprises. And one key growth opportunity

is in innovation and technology companies.

Looking at this chance, the Hong Kong Exchanges and Clearing (HKEX) has launched a public consultation for a third board, after the main board and the growth enterprise market, to allow more technology companies to list in the city.

Hong Kong’s capital market is known for its ability to help with public offerings of consumer or retail and real estate businesses, and financial services institutions.

But due to market valuations and the focus of the city’s institutional investors, technology companies often find Hong Kong less attractive as a listing destination compared with the United States, according to Edward Au, co-leader, national public offering group at Deloitte China. “For example, listings of these companies at the GEM [growth enterprise market] are unlikely to arouse interest from funds, which set their eyes on MB [main board] companies [with a] larger market capitalisation and higher liquidity.

“There have been successful listings through meeting the cash flow or market capitalisation requirements at the MB if [it has not] achieved the profit thresholds for listing,” Au says. “But there [are still] companies being turned away from the capital market, mainly because of being unable to meet these financial yardsticks. For technology companies, it is typical to have no profit or low cash flow, but more intangible performance like online traffic, at their development stage. So there may be a need to develop a separate set of listing criteria for these businesses in order to open the door of the capital market to them.”

Benson Wong, entrepreneur group leader of PwC Hong Kong, says Hong Kong’s IPO market led the world in terms of funds raised in 2016. “The financial services sector accounted for 69 per cent of total fund raising, while just 3 per cent was contributed by the technology sector. There is huge fund-raising demand from technology and new-economy companies, many of which have adopted a dual-shareholding structure. This is currently not allowed under Hong Kong main board and GEM board listing requirements.”

Paul Lau, head of capital markets at KPMG China, believes Hong Kong has always been a great platform for many types of companies to access capital, while preserving high regulatory standards. The establishment of a new board for emerging companies and companies with non-standard governance structures will help attract more technology companies to list in the city. “As investing in emerging companies involves greater risks, the third board may be opened to professional investors only. A disclosure-based regime and a less burdensome approach to sponsoring due diligence may follow. Meanwhile, professional investors should be able to judge the merits of an emerging growth company.