Companies drawn by convenience, global exposure: experts
Chinese mainland companies have hastened their steps to seek listings on the Hong Kong bourse over the years, and with its IPO and refinancing convenience as well as mechanisms such as the stock link programs, the Hong Kong market will have growing appeal to mainland enterprises, experts noted.
Data from Hong Kong Exchanges and Clearing showed that by the end of 2016, there were 1,002 mainland enterprises listed on the Hong Kong market, accounting for about half of the total number of companies listed on the bourse.
This number compares with 951 companies in 2015 and 152 by the end of 2001.
"The rapid increase of mainland companies' IPOs on the Hong Kong bourse not only shows that Hong Kong is strengthening its role as the major offshore financing platform for mainland companies, but also reflects the huge need for capital among domestic enterprises against the background of rapid economic growth in the mainland," Cheng Shi, a senior Hong Kong-based economist at ICBC International Research Ltd, told the Global Times on Tuesday.
Wang Haitao, a research fellow at the overseas research division under Shenwan Hongyuan Securities, said that a major advantage of IPOs in Hong Kong over IPOs in the mainland is convenience.
"The IPO approval process is much shorter in Hong Kong than in the mainland," Wang told the Global Times on Tuesday.
Companies that have completed IPOs on mainland markets in 2017 took about 2.1 years on average to complete the whole process, according to data from eastmoney.com.
In Hong Kong, it usually takes half that amount of time or less for a main board IPO.
"For the sake of convenience, mainland companies that want to launch IPOs often choose to seek listings in Hong Kong first, and then return to the mainland market to queue up for another listing," said Xi Junyang, a finance professor at the Shanghai University of Finance and Economics.
Also, stock refinancing is much easier in Hong Kong and does not need to go through the approval process by regulators that is required in the mainland, Wang said.
Xi also noted that for companies to build good reputations in the global market or companies that want to attract global capital, the Hong Kong bourse is a better choice.
"But Hong Kong IPOs also have disadvantages. For example, the financing cost of IPOs in Hong Kong is higher than in the mainland," Xi told the Global Times on Tuesday.
"Also, for companies that target the mainland market, getting listed on A-share bourses would make it easier for them to observe feedback from investors," Xi said.
Attracting big companies
According to Xi, Hong Kong welcomes all kinds of mainland enterprises, particularly big companies, to seek listings, but nowadays a growing number of small enterprises are showing more interest in applying for IPOs in Hong Kong.
"Most big companies are already listed, and for those that aren't, Hong Kong has to compete with the increasingly mature mainland stock market," he noted.
Wang noted that of the major mainland companies that are listed in Hong Kong, banking, energy and insurance companies take the biggest share in terms of market value. Such companies include the domestic big four commercial banks and coal production giant Shenhua Group.
The Hong Kong stock exchange announced on Friday the launch of a new board with the aim of attracting a wider range of mainland companies.
"The aim of launching the new board is not only to attract big mainland companies to seek listings in Hong Kong, but also to attract companies with new structures, such as companies with a dual-class share structure," according to Cheng.
Wang said that in the future, more and more mainland companies will seek listings in Hong Kong, "not only for the sake of convenience, but also because the mature stock management system in Hong Kong will stimulate company growth in a positive way."
He also noted that the establishment of stock link mechanisms like the Hong Kong-Shanghai Stock Connect and Hong Kong-Shenzhen Stock Connect will help boost capital flows from mainland investors to Hong Kong, which will prompt more mainland companies to seek IPOs in Hong Kong.