The Hong Kong stock market and regulators are working on rule changes to make foreign company listings on the city’s stock market simpler to do and easier for investors to understand.
The two bodies are trying to simplify the rules for primary and secondary listings to create a set of core principles that are transparent, clear and easy to understand for companies, investors and regulators, according to people familiar with the process.
Hong Kong lost its crown this year as the world’s leading exchange for new capital raisings, which it had held for three years, mostly due to the collapse in activity from big Chinese state owned companies, which do not count as foreign companies.
The Hong Kong Exchange has been trying to broaden its business away from its heavy reliance on Chinese equity listings in recent years both by trying to attract more primary and secondary listing from overseas and more recently by buying the London Metal Exchange.
Some see the changes as key to maintaining Hong Kong’s position as an international financial centre.
“To enjoy being an international financial centre and make that sustainable, you must attract more international companies and new companies,” said one person with knowledge of the work. “This is not about lowering standards, but making the process more user friendly.”
The changes are being worked on in parallel with the regulator’s efforts to tighten up standards around the role of sponsors in preparing initial public offerings, including making them criminally liable for false or misleading statements by companies in their prospectuses. This followed scandals around companies such as Hontex, a Chinese group that had assets frozen three months after listing.
Overseas companies listing in Hong Kong since 2007 have been approved on an ad hoc basis. Many have proved incredibly complicated because companies had to apply for long lists of waivers due to differences between rules in their home markets and rules in Hong Kong.
This has been especially true of secondary listings. The prospectus for Glencore’s secondary listing in Hong Kong, for example, had 24 pages worth of waivers, while the secondary listing of SBI Holdings, a Japanese finance company, had 40 pages of waivers.
That not only complicates the prospectuses that investors have to digest, but also creates a long and arduous process for the potential issuing companies, their bankers and their lawyers, in which a successful outcome is not always certain.
Part of the simplification of the rules revolves around recognising the listing standards of other countries. Companies from Hong Kong, mainland China, Bermuda and the Cayman Islands have long had automatic recognition, while in recent years 19 other countries have been recognised, including the US, UK, Singapore, Japan, Australia and several low-tax islands.
However, the approach to approving new companies from even these recognised jurisdictions remains ad hoc. Many market participants would like to see more countries being recognised and a more standardised approach to approvals.