Markets

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Hong Kong's plan to create a third exchange for new economy companies may have legs.

Having missed out on Alibaba Group Holding Ltd.'s $25 billion initial public offering, the city's exchange is proposing a new bourse that would have two parts: one open to all investors where companies are permitted to have dual-class share structures, and a second purely for professional investors where companies with no track record can trade.

It could be a way to shake things up in a city whose main board has become stacked with property developers and financial institutions, many of them state owned. The U.K. and Singapore are considering multiple share classes too.

Not So Hot After All
IPOs in Hong Kong have often raised more than those on the New York Stock Exchange or Nasdaq, but the city's bourse is still packed with old economy firms
Source: Bloomberg

Chinese tech companies wanting to maintain a greater degree of control over voting rights will find a ready investor base in the former British colony. Billions of yuan lie just across the border looking for a home, and Tencent Holdings Ltd. is already a firm favorite.

Two-Horse Race
While Alibaba's market value has overtaken Tencent's, the latter, listed in Hong Kong, was in the lead for several months
Source: Bloomberg

Chinese companies that are publicly traded in the U.S. have also been hit several times over the past few years by accounting scandals and as volatility at home tainted sentiment across the Pacific. Furthermore, it's more expensive from a regulatory point of view to be listed in North America, plus there's the constant specter of class-action lawsuits, which aren't allowed in Hong Kong.

The city's Securities and Futures Commission may decide against yielding its opposition to dual-class offerings to protect minority investors, but the pressure is real, and Hong Kong Exchanges & Clearing Ltd. is proposing safeguards that would avoid an IPO like Snap Inc.'s, where founders control the stock even if they leave.

China's tech entrepreneurs want to be in command, and they want their compatriots as big investors in the same time zone. Considering the long queues for listing approval, and the requirement that companies be making a profit, debuting on the mainland is all but impossible.

New York's days as a Chinese piggy bank may be numbered.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Defined as "high growth companies from innovative sectors," including biotech, healthcare technology, internet and direct-marketing retail and internet software and services.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net