Hong Kong Exchanges & Clearing chief says primary connect a key to winning Saudi Aramco

Hong Kong: Hong Kong Exchanges & Clearing Ltd’s bid to win Saudi Arabian Oil Co’s listing would get a boost from having a primary connect trading system with mainland China, according to its chief executive officer.

HKEX has so far created three links with domestic Chinese markets, and CEO Charles Li has plans for several others. The primary connect, which would see shares in Hong Kong-based initial public offerings made available to mainland investors, would act as a lure to major companies, he said in an interview on Bloomberg Television on Thursday.

“For Saudi Aramco to consider listing in Hong Kong, just a pure Hong Kong listing would probably not be compelling,” Li said. To be able to list in the city and sell shares into major Chinese institutions would be the “perfect catalyst” for primary connect, he said.

Saudi Arabia aims to sell about 5 per cent of Aramco in an IPO next year, and stock exchanges from the UK to Japan are vying for what may be the world’s richest public debut. The main contenders are bourses in London, New York, Hong Kong, Tokyo, Singapore and Toronto.

Primary connect is the “next big thing” said Li, though he added that it “will take a while.”

The exchange operator’s shares fell as much as 5.4 per cent in Thursday morning trading, its biggest intraday drop in more than a year.

HKEX posted second-quarter profits of HK$1.78 billion (Dh836 million, $230 million) Wednesday, a 14 per cent increase from HK$1.55 billion a year earlier. Revenue for the quarter was HK$2.76 billion, the company said in a statement, compared with HK$2.73 billion.

Li said in an earnings conference Wednesday that there isn’t a timetable for new links between Hong Kong and the mainland. As well as primary connect, other suggested systems would include exchange-traded funds and derivatives.

Turning the corner

Li sounded a bullish note in his Bloomberg Television interview about London Metal Exchange, which HKEX bought in 2012 and replaced its CEO early this year.

“We had a few tough quarters, largely to do with both the industry challenges and our own managing of the exchange,” he said. “But we have engaged the industry very deeply in the recent discussion paper.”

“This is the most comprehensive engagement with the industry and we are turning the corner,” said Li.

Li also said Thursday that the consultation for a proposed third exchange targeting new economy companies and allowing dual-class share structures is close to finishing. HKEX was widely seen as having missed out on Alibaba Group Holding Ltd’s IPO in 2014 in part because it didn’t allow multiple classes of stock.

“If there is a broader support for us to proceed we will proceed,” said Li. “If not, we may not proceed, that’s really basically the consultation. But I do believe the market has moved on from where we were a few years ago.”