A more accurate description of the status should be "Many companies are already in the process of listing in accordance with the new rules, in different stages of preparation." At present, there is no "blowout" phenomenon, which is mainly subject to two major reasons.
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"Because of the annual audit and summer vacation and other factors, Hong Kong stocks new listing applications are generally concentrated in the second half of the year, I believe that after the summer vacation in August, such as September to November, will enter the peak of the listing application." May 17, the Chief Executive of the Hong Kong Stock Exchange Li Xiaojia also responded to the cold topic of "the same rights and different rights" in the Hong Kong stock market.
Prior to this, on April 30, the revised Hong Kong Main Board Listing Rules came into effect; the Hong Kong Stock Exchange officially accepted innovative companies to apply for listing in Hong Kong. On May 3, Xiaomi Group submitted an IPO application to the Hong Kong Stock Exchange and uploaded the initial prospectus to become the first large-scale enterprise to apply for listing under the new Hong Kong rules. On May 7, Ascletis Pharma Inc. from Hangzhou (Songli) Pharma) has also formally submitted the application documents and is considered to be the first biotech company to successfully enter the Hong Kong market after the Hong Kong Stock Exchange has launched the new listing system.
In order to change the embarrassing situation that still dominates the traditional industry and Chinese state-owned enterprises, and enhance their vitality, as the most important listing mechanism reform in the Hong Kong market in the past 25 years, the preparation period for this reform is close to five years. Because of the new economy The company has opened up a “green channel†and relaxed the financial qualification requirements for listing, and it has also become “the most controversial reform (Li Xiaojia).†Therefore, every move of this reform has attracted much attention from the market.
However, as of May 15th, apart from the two companies mentioned above, the situation that the newly-recognized enterprises in the market, which were generally expected to be “actively activeâ€, did not appear. The news of the "cold encounter" in the reform of the Hong Kong stock market has also become one of the hot topics discussed in the market recently. "The number of companies submitting applications for listing under the new rules is lower than expected, which is very disappointing." A member of the Hong Kong Legislative Council's financial sector said that "in order to attract relevant companies to list in Hong Kong, the Hong Kong Stock Exchange should do More effort."
What are the relevant reasons for the above series of situations? The same is to open the door to the new economy. What impact will the CDR (China Depositary Receipts) pilot program launched by the China Securities Regulatory Commission on March 22 have on the Hong Kong stock market? "Financial" reporter recently interviewed He Wei, a partner of Dawei Law Firm, on a series of related issues. Headquartered on Wall Street, Davy has led the overseas listing of a series of large Chinese companies. He has also participated in the listing of many new economic companies such as Wenwen, Ping An Doctor and Iqiyi in Hong Kong and the United States. In the interview, Mr. He analyzed and judged the trend of the above-mentioned series of situations in combination with his recent interaction with the market and customers.
"Cold cold"
Caijing: The Hong Kong Stock Exchange recently issued a consultation summary on the “Listing System for Emerging and Innovative Industries Companiesâ€, which further refines the “different rights of the same sharesâ€, the listing of biotech companies in Hong Kong, and the second listing of innovative industry companies in Hong Kong. Requirements. From the point of view of the rules, what are the characteristics of the final summary version?
He Wei: The new rules are an important “breakthrough†for the Hong Kong capital market, which has been faltering in the past few years. It will open channels for various high-growth emerging companies to raise funds in Hong Kong. As the new chairman of the Hong Kong Stock Exchange, Shi Meilun said, the recent listing reform of the Hong Kong Stock Exchange aims to attract more companies such as technology finance and biomedicine to become a gathering place for Chinese "unicorn" enterprises. However, it should be noted that the new rules are not blindly and unconditionally open, but rather set a lot of relevant restrictive conditions in combination with the unique stock market environment in Hong Kong. Compared with the United States' different rules and the loose rules of biopharmaceutical companies, Hong Kong's new regulations still require a lot.
The listing reform of the Hong Kong Stock Exchange has different priorities. In response to the “different rights of the same sharesâ€, HKEx proposes to add Chapter 8A to the Listing Rules, detailing the listing qualifications of different voting rights companies and investor protection measures, and issuing relevant guidance letters. The Hong Kong Stock Exchange emphasizes that the "one share one vote" principle is still the most ideal method. Therefore, HKEx will retain the absolute discretion to refuse applicants to list under different voting rights even if they prove that they can meet the requirements mentioned in all the recommendations. If different voting rights structures do not meet the most basic governance practices (for example, ordinary shares have no voting rights at all), HKEx may refuse to apply for listing on the grounds that it is not suitable for listing. In addition, the new regulations have strict requirements on which companies and which shareholders can adopt the different rights of the same shares and the specific arrangements (proportions, etc.) of the same rights.
For biotech companies, the Hong Kong Stock Exchange recommends that only biotech companies with no income be listed in Hong Kong at the beginning. In addition, biotech companies may have a long period of drug development and commercialization, and their predictability is limited. Some market participants are worried that some companies will become shell companies if they cannot realize their business plans, so the new rules may be used by some enterprises. Becoming a tool to circumvent the original listing rules and to market the curve. In response to these risks, the Hong Kong Stock Exchange has also introduced a series of measures, such as the acquisition, sale or other transactions or arrangements that may cause fundamental changes in its main business without the consent of the Hong Kong Stock Exchange.
Caijing: From the perspective of the Mainland, what kind of companies are interested in Hong Kong's new listing rules?
He Wei: At present, it is mainly these two types of enterprises – one is an Internet company that has built or is ready to build a related shareholding structure in each vertical area of ​​TMT. They hope to retain “super voting rights†after listing. The other category is companies in various biomedical fields, especially innovative drug research and development companies and medical device manufacturing companies.
A stone stirred up a thousand waves. These new regulations are also triggering some “grouping effects†– because of the open attitude demonstrated by the new regulations and the recent popularity of the Hong Kong market itself, some Internet companies and medical companies that do not necessarily apply the new regulations are also eager to prepare The ordinary listing rules are listed in Hong Kong.
Caijing: After the introduction of the new regulations, the "blowouts" expected by the parties did not appear. Many Hong Kong media analyzed this as "reform for cold."
He Wei: I don't quite agree with this conclusion. As of mid-May, although there are only two companies submitting applications to the Hong Kong Stock Exchange under the new rules, this does not mean that companies interested in listing are not interested in this. According to the market situation I understand, a more accurate description of the status should be: “Many companies have planned to go public according to the new rules, but they are in different stages of preparation.†There is no “blowout†phenomenon at present, mainly subject to two Big reason:
First of all, although the relevant reforms of the Hong Kong Stock Exchange have been coming out, after a long period of discussion, the real system was not officially released until April 25 this year. Although the final rules and the previous drafts are not particularly fundamental, they involve a series of vague areas, such as the definition of innovative enterprises. .
Second, although the formal bill has now taken effect, companies need to do a lot of preparatory work before they can submit an application. Take, for example, a leading new drug research and development company that our law firm has recently collaborated on: they have been preparing for the listing in Hong Kong after the Spring Festival this year. Although the pace of work is very fast, it takes a certain amount of time to finish all the work. For similar companies, choosing intermediaries, conducting due diligence on laws, business, etc., sorting out their financial status, drafting prospectus documents, etc., each work line means a lot of work.
Caijing: Xiaomi and Glory Pharmaceuticals have completed this process relatively quickly. What are the reasons?
He Wei: First, this is related to the willingness of the company and the preparation for the preliminary period. Some companies have been preparing for the rainy days, and they are preparing for the new regulations before they are released, hoping to seize the market window earlier. Second, the Hong Kong Stock Exchange also has a pre-communication channel. Through the pre-communication process, the Hong Kong Stock Exchange can give relevant guidance to companies that have not formally submitted applications. Some companies have already communicated with the Hong Kong Stock Exchange on the occasion of the new regulations.
However, some companies are either not fully prepared, or are on the sidelines of the market and supervision. They are not necessarily too willing to go to Hong Kong to be the first company to eat crabs. In accordance with Hong Kong's listing rules, once a company submits an official listing application (Form A1), HKEx will make the relevant Chinese and English materials public. If the application is not prepared in a solid manner, there is a major deficiency or embarrassment, it may be rejected by the Hong Kong Stock Exchange. Obviously, the withdrawal of the form will have a great negative impact on the listing process of the company, either delaying the time, missing the market window, or completely failing to go public. Therefore, many companies will be cautious and cautious about the timing of listing applications.
Caijing: As the first new economic enterprise ushered in this year's Hong Kong capital market with a valuation of more than 10 billion Hong Kong dollars, the good doctors listed soon have a "break" and will affect the new technology companies listed in Hong Kong. ?
He Wei: Recently, some technology unicorns have fluctuated greatly in Hong Kong stocks. They were all oversubscribed at the time of the release, but many fell at highs. Stock prices are often influenced by macroeconomics, industry competition and regulation, corporate fundamentals and even geopolitics. For any market, any listed company, the stock price rises and falls is normal, especially for new economic companies. On the one hand, such enterprises at this stage are relatively scarce in the Hong Kong capital market, so the initial public offering (IPO) often appears to be highly sought after, "a hard to find" situation. On the other hand, these companies usually have novel business models and relatively short operating history. Investors who are not accustomed to researching new economic listed companies may face the business data (KPI) and financial statements of these enterprises, and may not be able to understand the company at once. The fundamentals and business, financial prospects, and market valuations often differ.
As far as I know, there are a large number of unicorn companies and the best in China's vertical fields, all of which are preparing to go public in Hong Kong. In the long run, as such unicorns are more and more in Hong Kong, the unicorns are getting longer and longer, and investors are becoming more rational, mature, and more capable of understanding and analyzing these new ones. The value of an economic company.
Global competition prospects
Caijing: A major background in the reform of the listing system in Hong Kong is that all major stock exchange markets around the world are actively attracting “new economy†companies to list. How effective will Hong Kong's reforms be?
He Wei: In the context of globalization, the world's financial centers and securities markets are competing for two things—(1) quality listed companies and (2) investors and their capital. China's high-quality enterprises are "places for military strategists." However, considering the major factors such as the liquidity, culture and supervision of the capital market, the A-share market, the US market and the Hong Kong stock market are the places where a large number of mainland new economic enterprises will seriously consider listing. This has been the case for the past 20 years, and it should be the same for a long time in the future. The attractiveness of these three places will change with different policy changes and operational models.
The advantage of China's A-shares lies in the fact that the consumer market and the securities market of listed companies are unified, investors have a high degree of understanding of enterprises, and the communication costs between listed companies and investors are relatively low. However, from the listing system itself, A-shares are greatly affected by the policy, and there is a series of uncertainties. This is a good opportunity for the Hong Kong market. But unfortunately, for a long time before this, Hong Kong's relatively conservative regulatory ideas and listing rules have shut out a large number of new economic enterprises. Almost all of China's best Internet companies are listed in the US. In addition to Tencent, there are very few new economic companies listed in Hong Kong. However, since the beginning of 2017, this situation has finally changed. A series of innovative companies including Reading, Razer, and Ping An Doctor have chosen to list in Hong Kong. On the one hand, Hong Kong is changing its original stereotyped system, and its "more grounded" in terms of culture, language and trading habits, and interconnecting and enabling companies listed in Hong Kong to directly introduce mainland investors, so Hong Kong stocks The attraction is increasing. On the other hand, from the perspective of long-term risks, Sino-US trade disputes may cause some companies that have traditionally chosen to go public in the US to seriously consider listing in Hong Kong.
Caijing: At the same time as the listing rules were revised in Hong Kong, China, in order to attract companies to return to A-shares or unicorn companies, the mainland is also discussing a series of reform measures such as the implementation of CDR. What impact will this have on the Hong Kong stock market?
He Wei: If only Hong Kong reforms itself, then it is natural to increase its attractiveness. But any market is not static, and the game between markets is also continuous. The United States and A-shares are also constantly revising their capital market rules to enhance their competitiveness. The CDR should be the latest attempt by Chinese securities regulators to change and attract new economic companies. In the long run, once the CDR road goes smoothly, the mainland stock market will open a new channel for attracting high-speed development of new economic enterprises.
However, from the current point of view, how the CDR can land, how much potential energy can be formed, and it takes a period of market practice. On the one hand, in the short term, CDR is still in the legislative stage; on the other hand, the threshold of CDR is very high. According to the opinion draft of the China Securities Regulatory Commission, the pilot enterprises must be red-chip companies that have been listed overseas and have a market value of not less than 200 billion yuan; they have not been listed overseas, and have not fallen below 3 billion yuan in the past year. And the valuation is not less than 20 billion yuan, or the revenue is growing rapidly. It has independent research and development, international leading technology, and red-chip enterprises and domestic enterprises that are in a comparatively dominant position in the competition of the same industry. Obviously, the attitude of the regulatory authorities is very cautious, and the CDRs have high requirements for enterprises. After screening, there should not be a lot of companies that can reach the standard in the end. New economic companies with small market capitalization may still be rejected, and only US stocks or Hong Kong stocks can be considered.
Caijing: From the perspective of law, what are the basic difficulties that CDR deserves attention? Where is the so-called "technical activity"?
He Wei: The State Council recently issued a number of "Opinions on Piloting the Issuance of Stocks in China or the Depositary Receipts of Innovative Enterprises". The long-awaited and long-awaited reform of the issuance system has finally come to the spotlight. Through the method of local depositary receipts, it is very wise to open a door for many new economic enterprises registered overseas but operating in China to “return to their homesâ€. The big goal of the CDR system pilot is clear, and the big ideas are clear. However, it should be noted that the "Several Opinions" only outlines a prototype, and many details in the process of issuing and listing innovative companies remain to be confirmed. The overseas company law and the securities law are not the same as the domestic supervision ideas. The specific rules vary widely. How to find the requirements that can be applied to the registration and listing of listed companies to a certain extent, and the path to the Chinese legal framework and national conditions. Ultimately, it is a difficult problem for Chinese exchanges, investors and listed companies to benefit.
For example, if a company is already listed in the US, typical red-chip companies registered in Cayman should consider issuing CDRs. How do they do legal and financial disclosure? Use American guidelines? Use Chinese standards? If only one side of the standard is applied, it may hurt the investor's rights on the other side, but if both are applied, will it cause the listed company to overburden? In terms of corporate governance, should the company comply with Cayman, the US, or A-share requirements in terms of ownership structure, shareholder voting rights, and board setting? For another example, the US securities market does not have a price-earnings ratio requirement. Does China's current issuance guidance price-earnings ratio standards apply to these companies?
We Chinese have a very sensible saying: cross the river by feeling the stones. I hope that the CDR's legislation and implementation process will eventually be a process of realizing the truth.
This article was first published on the WeChat public account: Financial magazine. The content of the article belongs to the author's personal opinion and does not represent the position of Hexun.com. Investors should act accordingly, at their own risk.
(Editor: Yue Right HN152)
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