Banking & Finance

Luring the next Alibaba

Will HKEx’s rule change attract the listings of Chinese tech giants?

Hong Kong Exchanges and Clearing Chief Executive Charles Li speaks in front of the logo of HKEx in Hong Kong

Li: doesn’t want to miss the boat

There are 51 blue chips in Hong Kong’s Hang Seng Index. The heaviest constituents are Tencent and HSBC, with both shifted to a 10% weighting in the benchmark index following its latest reshuffle in November.

Should Alibaba have picked Hong Kong for its $25 billion listing in 2014, chances are the Chinese internet giant would command a similar level of market-moving influence to its Shenzhen-based archrival.

Jack Ma eventually opted for New York instead because Hong Kong regulators refused to give him a waiver regarding Alibaba’s shareholding structure. This would have allowed a group of senior executives and founders to control the board while holding only around 13% of the listed company.

Ma insisted at the time Alibaba was not going to change its partnership structure just to accommodate a listing in Hong Kong. He expected the sheer size and prestige of his deal would change minds, but local regulators chose instead to stick by the so-called “one share, one vote principle”, losing the Alibaba IPO to New York as a result.

It was a bitter moment for HKEx, the company which operates the Hong Kong bourse. And not surprisingly in one of the most money-centric cities on earth it occasioned some extended soul-searching.

And last month the market operator finally announced a major change: it will add two additional chapters to its listing regulations for tech firms that have multiple classes of shares, or weighed voting rights (WVR), as Alibaba has. The amendments are the result of a public consultation which began right after Alibaba ditched Hong Kong three years ago.

“The market has changed substantially in 30 years, it’s time to make a change,” Charles Li, HKEx’s chief executive, told reporters. “If we don’t change our listing rules, we will miss the boat.”

Some commentators have been puzzled by the reform. “The oddity here is that recent events have made nonsense of the supposed purpose of attracting more technology listings. They [Chinese tech firms such as Tencent Literature] have come anyway. There has been a flood of them over the last few months,” Jake Van Der Kamp wrote in a column for the South China Morning Post (a newspaper, ironically enough, owned by Alibaba).

But Li has certainly heeded the “don’t miss the boat” advice from Chinese President Xi Jinping, who warned Hongkongers in July last year not to miss the opportunities that Beijing has offered, such as taking part in the integration of the so-called “Big Bay Area” in southern China (see WiC358).

HKEx knows there are some big fishes still to catch. Ant Financial, Alibaba’s finance arm, has been seeking a listing that could value the company at $60 billion at least. A number of Chinese tech heavyweights, including car hailing app Didi Chuxing and Xiaomi (see this week’s Internet and Tech story) could also feature in the pipeline later this year.

According to Ming Pao, there are about 93 unlisted start-ups in China that are worth at least $1 billion, and HKEx’s latest reform on WVR is “obviously tailor made for this century of unicorns”. Even Alibaba could push for a secondary listing in the former British colony, the newspaper suggested.

That would be good news for HKEx’s own shareholders. Hong Kong Economic Times reported that about 160 companies went public in Hong Kong last year, up 34% from 2016, but the fundraising size shrank 33% to about $17 billion.

A spate of big ticket IPOs would naturally boost the sentiment of the broader market. The HSI gained 36% last year, making the Hong Kong bourse the best performing market among developed economies in 2017 (in comparison the Dow Jones only climbed 25% during the period).

The biggest contributor to the bull market? That HSI heavyweight Tencent which more than doubled last year…

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