A new round of reform measures in the Hong Kong stock market has been gradually implemented. In particular, the Hong Kong Stock Exchange launched a listing mechanism for specialized technology companies to attract qualified technology companies to apply for listing in Hong Kong, which has become the "highlight" of this round of Hong Kong stock market reform.
As an important participant in the Hong Kong capital market, domestic securities firms are based in Hong Kong, backed by the mainland, and radiate to the world, embarking on an international development path. What role can domestic securities firms play in the new round of reform of the Hong Kong stock market? What are the special advantages? How to seize the opportunity of reform while serving the specialized technology enterprises?
Recently, the Shanghai Securities News invited Chen Yongxing, director of CICC Hong Kong Investment Banking Department and managing director, Yu Yang, member of the Global Investment Banking Management Committee of CITIC Securities and head of the investment bank of CITIC CLSA, and Lin Xiaodong, general manager of GF Holdings (Hong Kong), to discuss the above issues. discussed.
Hong Kong stocks may become the first choice for overseas listing of technology companies
Shanghai Securities News: In March this year, Chapter 18C of the Main Board Listing Rules of the Hong Kong Stock Exchange was added to open up listing channels for specialized technology companies. What are the differences between the newly-launched specialized technology sector of the Hong Kong Stock Exchange and the Science and Technology Innovation Board of the Shanghai Stock Exchange?
Chen Yongxing: The listing mechanism for special technology companies launched by the Hong Kong Stock Exchange will help a new generation of innovative companies that have not yet achieved commercialization or are in the early stages of commercialization to participate in the capital market. The new institutional arrangement is for "hard technology" companies in the start-up or growth stage, especially in the early stage, need to invest a lot of money, engage in advanced technology research and development, have not yet generated enough income to meet the requirements of the main board listing rules, but want to participate in the capital market, Enterprises that reach domestic and foreign investors are more attractive.
Similar to the A-share Science and Technology Innovation Board, the Hong Kong Stock Exchange supports the financing and development of "hard technology" companies, but there are three differences.
First, in terms of industry attribute comparison, the five specialized technology industries involved in chapter 18C are new generation information technology, advanced hardware, advanced materials, new energy and energy conservation and environmental protection, new food and agricultural technology; the "hard technology" track of the Science and Technology Innovation Board It mainly includes new-generation information technology, high-end equipment, new materials, new energy, energy conservation and environmental protection, biomedicine and other fields that meet the positioning of the Science and Technology Innovation Board. Chapter 18C mainly evaluates the scientific and technological innovation attributes of enterprises from the two perspectives of R&D time and expenditure ratio.
The second is that Chapter 18C pays more attention to the expected market value of enterprises, and puts forward higher valuation requirements for non-commercialized companies (non-commercialized companies must reach the market value threshold of 10 billion Hong Kong dollars when they go public).
Third, the Hong Kong capital market has gathered a large number of international investors. Specialized technology companies with international development needs can be listed on the main board of the Hong Kong Stock Exchange according to Chapter 18C, which can promote the implementation of the company's internationalization strategy.
Yu Yang: At present, some mainland technology companies have come to us for consultation, hoping to list on the Hong Kong Stock Exchange through Chapter 18C, but the number is not very large.
There are two differences between the Hong Kong Stock Exchange’s specialized technology sector and the Shanghai Stock Exchange’s Science and Technology Innovation Board: First, Chapter 18C mainly includes five major industries. Among them, the new generation of information technology industry may include some Metaverse companies. The valuation of listed companies, the ability to connect to the international market after listing, and the liquidity after listing, etc., so as to choose whether to list on the Hong Kong Stock Exchange. Secondly, Chapter 18C focuses on the proportion of R&D investment, and puts forward minimum requirements for the percentage of the annual R&D investment in the total operating expenses of the reporting entity in the three fiscal years before listing. The Science and Technology Innovation Board stipulates that in addition to the basic requirements for enterprises to meet the attributes of science and technology innovation, more emphasis is placed on considering the comprehensive financial performance of enterprises in terms of market value, revenue, profit, and cash flow.
Lin Xiaodong: Under the influence of the Hong Kong Stock Exchange's continuous reform of the listing system, Hong Kong has become the world's second largest biotechnology fund-raising center. The introduction of Chapter 18C is expected to attract more high-tech and "hard technology" companies to list in Hong Kong.
For a period of time, many Chinese concept stocks listed on the US stock market have chosen to return to the Hong Kong stock market for listing. The Hong Kong Stock Exchange has provided very important development opportunities for special technology companies and is expected to become the first choice for special technology companies to list overseas.
For companies that have been listed or plan to be listed on the Science and Technology Innovation Board, if there is a plan to list A+H shares in the future, Chapter 18C will also provide relevant companies with unique financing channels. At the same time, specialized technology companies can also be listed on the Hong Kong stock market through the 18C chapter, and then return to the A-share market. Combined with the company's development path, it can flexibly use domestic and foreign financing channels.
There are similarities in the industry positioning between the specialized technology sector of the Hong Kong Stock Exchange and the Science and Technology Innovation Board of the Shanghai Stock Exchange, but there are certain differences in specific listing requirements. For red-chip companies, the Science and Technology Innovation Board has higher requirements. Therefore, red-chip companies that have not yet met the requirements of the corresponding sector in the A-share market may try to list on the main board of the Hong Kong Stock Exchange through Chapter 18C. In addition, the metaverse technology, new food, and new agricultural technology that can be accepted in Chapter 18C have not yet been included in the industries supported and encouraged by the Science and Technology Innovation Board.
Domestic securities firms have multiple core advantages
Shanghai Securities News: In the process of serving companies to go public in Hong Kong, what experience do domestic securities firms have in institutional sales, transaction pricing, and investment research, which can be applied to serve special technology companies to enter the capital market in the future?
Chen Yongxing: First of all, domestic securities firms have been deeply involved in Hong Kong for many years, and have witnessed and participated in important nodes in the development of the Hong Kong stock market. Domestic institutions have been actively maintaining close communication with Hong Kong regulators on optimizing listing rules and mechanisms, and tracking the financing needs of companies planning to list in different tracks and types, as well as the investment demand dynamics of investors.
Secondly, domestic securities firms get close to mainland enterprises and conduct in-depth research on industry characteristics. Therefore, some representative listed companies, such as new consumer, TMT, and leading companies in the medical field, will choose to let domestic securities companies "escort".
Finally, domestic securities companies can provide capital market services throughout the life cycle, and can provide assistance for corporate development in major transactions such as private equity financing, IPO, cross-border mergers and acquisitions, and overseas bond issuance. This relies on the transaction execution experience and professional capabilities accumulated by domestic securities firms in overseas capital markets.
Yu Yang: For companies sprinting for IPOs in Hong Kong, pricing and sales network are very important links.
First, in terms of transaction pricing capabilities, domestic securities firms rely on research institute resources to provide guidance for market expectations and value discovery. The Securities Research Institute is an important value discoverer in the capital market and an important supporter of many businesses. Securities firms and investment banks must focus on market needs and continuously accumulate industry research resources and institutional investor resources to discover the long-term investment value of enterprises. Domestic securities firms are expected to achieve more reasonable and accurate pricing for companies planning to list by taking advantage of domestic and overseas integration.
Second, the underwriting ability of securities firms is the core competitiveness. Top domestic securities firms can continue to make use of domestic and foreign sales networks and platform advantages to systematically and comprehensively cover institutional customers. For example, the brokerage and trading department of CLSA covers nearly 3,000 foreign-funded institutions. In the underwriting of large-scale IPOs, it can introduce incremental international orders and international investors through the global sales network, laying the foundation for the successful issuance of projects.
Lin Xiaodong: The domestic brokerage platform in Hong Kong is generally the main platform for the group's international operation, and is committed to becoming a bridge connecting domestic and foreign capital markets. In the case of legal compliance and full consideration of the difference between primary and secondary market information and risk isolation, domestic securities firms can fully coordinate through domestic and overseas channels, and can link up with the fund companies under the group to give full play to the advantages of cross-border market investment, global resource allocation and The research and development advantages of the headquarters research institute provide better services for related corporate financing activities.
In the investment banking line, leading domestic securities firms have accumulated rich experience in listing Hong Kong stocks, and are able to build an investment banking service system with a full business chain and a full life cycle. In terms of investment management, domestic securities companies can rely on the group, with the help of asset management business, public fund management business and private fund management business, and assist the development of Hong Kong stock underwriting business by subscribing to customers’ secondary market stocks and other forms.
Hong Kong IPO market expected to improve further
Shanghai Securities News: With the continuous advancement of the new round of reforms, how will the Hong Kong IPO market develop?
Chen Yongxing: In the process of business development, CICC Hong Kong's investment banking team has expanded to more than 100 people, focusing on investment banking businesses such as overseas equity, mergers and acquisitions, and fixed income products.
Looking ahead, we believe that the Hong Kong stock market still welcomes leading companies in various industries to list in Hong Kong. Under the background of the China Securities Regulatory Commission’s implementation of the filing system for overseas listing of domestic enterprises, the continuous update of Hong Kong’s listing rules, and the continuous advancement of the interconnection between the A-share and Hong Kong stock markets, the Hong Kong stock market is strongly attractive to domestic and foreign issuers.
Yu Yang: Entering 2023, the Hong Kong IPO market is showing signs of recovery. The first to feel the atmosphere of the IPO market is the brokerage institution responsible for the underwriting of new shares.
Before the end of October 2022, many IPO issuers took a wait-and-see attitude towards listing in Hong Kong. However, since the full restoration of customs clearance between Hong Kong and the Mainland, IPO-related issuances have become more active than before. Some issuers believe that with the recovery of the domestic economy, the profitability of enterprises will be greatly improved, so they are expected to start the IPO process in the second half of the year.
In addition, with the substantial expansion of the interconnection standard, the "Hong Kong dollar-RMB dual-counter model" is about to be implemented, foreign companies mainly listed on the Hong Kong Stock Exchange are expected to be included in the Hong Kong Stock Connect and other good news, it is expected that the Hong Kong IPO market is expected to further improve in the second half of the year .
Lin Xiaodong: In the Hong Kong stock market, the new business growth points of domestic investment banks lie in the listing of high-tech and "hard technology" companies in Hong Kong and the return of Chinese concept stocks to Hong Kong stock business. Recently, Alibaba and JD.com have spun off companies in their systems and are preparing to list on the Hong Kong Stock Exchange. In the future, more large companies may spin off their different business subsidiaries to go public in Hong Kong. In addition, it is expected that more new economy companies will go public in Hong Kong in the future, especially with the launch of Chapter 18C, more "hard technology" companies will embark on a journey to go public in Hong Kong.