The Hong Kong Stock Exchange (HKEX) has been on the hunt for big technology companies since the loss of Alibaba Group, which rejected the city in 2014 and floated in New York, largely because it favoured a bourse that allowed listing shares with weighted voting rights (WVRs). After being passed over, HKEX went to battle with the US and later China to become a top tier listing destination for tech. This April, Hong Kong’s WVRs finally got the go ahead.
Xiaomi Corp, which was behind Hong Kong’s first dual-class listing, was always going to grab attention. The company originally planned a listing in both Hong Kong and China, eyeing the simultaneous sale of H-shares and China Depository Receipts (CDRs). But executives at HKEX got an even bigger boost when the company decided to postpone its CDR float.
By putting off its CDR issue indefinitely the smartphone maker cast a shadow over China’s flashy new ECM product and shone a light on Hong Kong’s tech-friendly system. The Chinese Securities Regulatory Commission still appears overbearing and inflexible, despite indications it would create an easier listing procedure for its tech giants.
Tens of Chinese tech companies, big and small, are taking Xiaomi’s lead. Among them are tech unicorn Meituan-Dianping — seeking up to $4bn from an IPO — and steel e-commerce platform Zhaogang.com. The two names stand out, given their plans to become the second and third firms to list with WVRs.
There are even a handful of tech firms on the road this week — 51 Credit Card, streaming platform Inke, and mobile game publisher FingerTango.
And another amendment to the HKEX’s regulations, which allows pre-revenue biotechnology companies to list, is yielding benefits. China-based Innovent Biologics and MicuRx Pharmaceuticals filed IPO documents last week. Both are at a pre-revenue stage.
However, Hong Kong shouldn’t toot its own horn just yet. Despite the issuers in the market at the moment, most are preparing for third quarter flotations.
A lengthy pipeline is all well and good, but getting all of these companies listed in a market swollen with tech could be a different matter. While billion-dollar companies such as Meituan might look safe, if the past nine months are anything to go by, size doesn’t matter.
In the last quarter of 2017 and the first six months of this year, the city hosted new economy firms such as Ping An Good Doctor, Razer and China Literature, all of which caused a furore pre-listing. But as of July 3, only China Literature was trading above its IPO price and that has still traded down around 32% since its first day pop last November.
A growing line of companies from new and innovative sectors planning IPOs is certainly something to celebrate. But bankers should urge caution.
Hong Kong is new to WVRs and is being flooded with technology in its equity capital market. The sell-side are going to have their hands full after the summer break. With so much choice, as well as the heavy presence of the city’s tech-ignorant retail investors, the HKEX should take a beat before patting itself on the back.