Capital markets lawyers in Hong Kong are bullish about deal flow this year, as new listing rules are expected to attract more initial public offerings from tech and biotech companies.
The Hong Kong Stock Exchange announced on Tuesday that a set of new listing rules would take effect on April 30. The new regime will accept applicants with dual-class shares, a structure preferred by many startups and one that allows biotech companies with no revenue to list.
“These new rules represent the single most significant change in the Hong Kong market since the first ‘H-share’ listings of Chinese companies in the early 1990s,” said Christopher Betts, a Hong Kong partner with Skadden, Arps, Slate, Meagher & Flom.
The permission to allow dual-class listings would help the Hong Kong bourse attract technology giants such as Alibaba Group Holding Ltd., which opted to list on the New York Stock Exchange five years ago after Hong Kong refused to change rules that would have enabled the company founders to keep control of their company.
The Hangzhou, China-based e-commerce giant created by Chinese billionaire Jack Ma ended up raising $25 billion in its 2014 initial public offering. Reflecting on losing the Alibaba deal, Charles Li, chief executive of the Hong Kong Stock Exchange famously wrote: “Losing one or two listing candidates is not a big deal for Hong Kong; but losing a generation of companies from China’s new economy is.”
As part of the new regime, founders will be able to own premium class shares with voting rights up to 10 times that of ordinary shares; the premium class shares cannot be transferred.
In addition, the bourse also plans to open listing applications to pre-revenue biotech companies that have met certain working capital and market capitalization requirements. This new rule is meant to attract research and development-focused biotech companies, especially those from mainland China.
The third piece of the new rules targets companies already listed overseas, including on the New York Stock Exchange, Nasdaq and the London Stock Exchange. Hong Kong could now potentially facilitate secondary listings for overseas-listed Chinese companies such as Alibaba and Baidu Inc., which weren’t allowed to seek a secondary listing in Hong Kong.
Lawyers welcome the development. The change in rules will likely create more transactions and therefore more work for capital markets lawyers in Hong Kong, said Lu Guiping, a Hong Kong partner at the Chinese firm Haiwen & Partners.
Skadden’s Betts agreed that there would be a short- to mid-term uptick in deals following implementation of the new rules. “They pave the way for a vast pipeline of Chinese tech companies and global biotech companies to list in Hong Kong, as well as a ‘homecoming’ listing for Chinese tech companies already listed in the United States,” said Betts.