Hong Kong’s stock exchange operator from January will lift its listing qualification for the first time in nearly three decades, but will stop short of doubling the requirement after push-back from the city’s brokers and bankers.
Companies seeking to raise funds on the Main Board of Asia’s second-largest capital market must have earned at least HK$80 million (US$10.3 million) in combined profits in the three years prior to listing, a 60-per cent increase from the current requirement, according to an announcement by the Hong Kong Exchanges and Clearing Limited (HKEX). The new rule will take effect in January 2022.
The exchange decided to water down its proposal, yielding to strong opposition to the plan, the South China Morning Post reported on May 5. The about-turn by the exchange underscores the need by the HKEX to balance its pursuit of a robust pipeline in initial public offerings (IPOs) with an acceptable minimum standard and quality on the exchange.
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“The exchange is mindful that the proposed increase in the profit requirement will affect companies at an early development stage, or SMEs which intend to list on the Main Board,” the HKEX said, adding that 95 respondents had registered their opposition to the proposal. “The exchange nevertheless has a role to play in maintaining the quality of the Main Board by setting appropriate initial listing criteria to attract companies of the desired profile and to protect the interest of the investing public.”
The HKEX, which operates as a publicly traded company with its shares traded on the exchange, had wanted to increase the financial qualification to deter smaller applicants and so-called shell companies from seeking listings. Former JPMorgan banker Nicolas “Gucho” Aguzin is scheduled to take over as chief executive of the HKEX next week.
“We are committed to upholding and enhancing market quality, as well as to promote investor protection,” said Bonnie Chan, HKEX’s head of listing. “Robust gate-keeping, together with targeted post-listing regulation, are crucial in achieving this, providing more clarity and transparency to the market on our regulatory and enforcement responsibilities. We believe the revised rules will benefit the Hong Kong capital markets as a whole, further strengthening the city’s role as Asia’s premier international financial centre.”
Bonnie Chan, head of listing at Hong Kong Exchanges and Clearing Limited (HKEX), during an interview at Exchange Square in Central on 5 October 2020. Photo: Winson Wong. alt=Bonnie Chan, head of listing at Hong Kong Exchanges and Clearing Limited (HKEX), during an interview at Exchange Square in Central on 5 October 2020. Photo: Winson Wong.
The initial plan, which sought to increase the qualifying threshold in two options of at least HK$125 million or HK$150 million, would mean that 60 per cent of companies that listed on the Main board between 2016 and 2019 could not make the cut.
Over a two-month public consultation period that ended in early February, the bourse operator received overwhelming opposition from stockbrokers, accountants, investment bankers and legislators to its plan, according to people familiar with the matter. They opposed the higher threshold over the concern that an onerous listing process would starve many local companies of the chance to list.
“The new threshold is more acceptable than the original proposals but it is still a bar too high for some companies, particularly when the profitability of many local firms are hurt by the Covid-19 pandemic,” said Tom Chan Pak-lam, chairman of the Hong Kong Institute of Securities Dealers, the local brokerage industry body.
Listings on the bourse, the world’s largest market for IPOs in seven of the past 12 years, soared ninefold to HK$136.6 billion in the first quarter as 32 companies including Baidu and Bilibili raised funds in secondary listings to hedge their finances from US legislation.
Shares of the Hong Kong exchange operator rose by 0.8 per cent to HK$457.6 before the announcement of the rule change.
