Hong Kong Listings Rule Changes Set to Transform Market, Li Says

  • HKEX on Friday proposed allowing dual-class share companies
  • Profitability requirement for biotech companies also dropped
HKEX’s Charles Li discusses the exchange’s proposed changes to dual-class shares and his outlook for the IPO market.

Hong Kong Exchanges & Clearing Ltd.’s proposal to change which companies are eligible to list in the city will boost the pipeline of initial public offerings, according to Chief Executive Officer Charles Li.

Technology and so-called new-economy companies with a dual-class share structure, and biotechnology firms that don’t have a track record of profitability, will be able to apply to list in the city under HKEX’s plans, which were unveiled on Friday.

“If we are able to introduce a completely new class of new-economy companies then our market is going to be fundamentally different,” Li said in a Bloomberg Television interview on Monday. “Coupled with the money coming from the north, the southbound connect and with the new economy, I think Hong Kong is going to be an explosive growth story.”

Read more: Feeling second-best -- a QuickTake on dual-class shares

Hong Kong has been looking for a way to target China’s largest technology listings after losing Alibaba Group Holding Ltd. to the U.S., where the firm raised $25 billion with a structure that preserved control for some senior executives. Li said the proposed changes will be “transformative” for financial markets in the former British colony and the flow of new-economy type firms coming to list will attract more international investors.

The planned changes also lift restrictions on secondary listings for “innovative” mainland Chinese companies, and raise the minimum market capitalization for main exchange IPOs to HK$500 million ($64 million) from HK$200 million. Another round of consultation in the first quarter of 2018 will consider detailed rules.

Some of the world’s largest technology companies, from Alibaba to Facebook Inc. and Google parent Alphabet Inc., use shares with enhanced voting power to protect their founders and management influence after going public. Hong Kong’s exchange will be following major trading venues including those in New York in adopting dual-class shares.

Hong Kong has thrown its hat in the ring for Saudi Arabian Oil Co.’s potentially world-beating listing. As a lure, Li is touting the rising wealth of mainland investors as he makes plans for a trading link to let them buy into Hong Kong IPOs.

HKEX share rose as much as 4.7 percent in Monday morning trading.

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