Feb 01, 2018 05:58 PM

Chairman of the AMTD Group: Hong Kong will see a Tech IPO Boom

In 2018, we may see a fever-pitch of tech companies listing in Hong Kong. Mr. Calvin Choi, Chairman and President of Hong Kong financial institution AMTD Group, said in an exclusive interview with Caixin in Davos that with policy support for the dual-class share system on the Hong Kong Stock Exchange (hereinafter referred to as HKSE), Hong Kong will usher in a tech IPO boom.

Mr. Charles Li Xiaojia, the Chief Executive of HKEX, said at the end of 2017 that, starting from the second half of 2018, companies adopting a non-standard shareholding structure will be allowed to go public in Hong Kong. The introduction of the dual-class share system is a core issue. (See Caixin Weekly “HKSE Evolving to Change”)

“The time for change has arrived and the trend of tech companies listing in Hong Kong is only beginning,” said Calvin CHOI.

Yet the market remains divided over the dual-class share system. Opponents argue that the system grants some shareholders privileges, which effectively deprives rights of the majority of shareholders, making it more difficult for investors to supervise listed companies.

However, Calvin Choi is in the camp supporting the system. He believes that the reform direction is correct, and that policies need to serve the development of companies. For tech companies and new economy enterprises, management equity may be diluted to the extent where they can hardly implement control over the company after many rounds of financing. But with long-term consideration of corporate development, it’s essential that management can continue its control over tech companies.

In the dual-class share structure, some shareholders enjoy voting rights or other rights that are disproportionate to their holdings. Many science and technology companies have expressed a preference for this system. These companies have their own financial limitations in initial stages and they need constant access to financing for development. However, the joining of investors will substantially dilute the equity of company founders. With the dual-class system, founders can keep their control over the company with special shareholder rights, while holding a small number of shares.

Calvin Choi also believes that it is crucial for regulators, investment banks, industry associations and others to keep investors informed of new changes in the market.

In addition, Mr. Choi mentioned that in recent years, there had also been a trend of China concept stocks returning from the U.S. stock market. He thinks that many Chinese companies, after listing on the U.S. stock market, fail to realize their own value in terms of trading volume and share price, due to insufficient market popularization or lack of acknowledgement from local investors towards the companies. Yet the improvement of cooperation mechanisms such as the Shenzhen-Hong Kong Stock Connect and the Shanghai-Hong Kong Stock Connect has become the driving force for this system.

As an international financial market, how can Hong Kong play its role in financing Belt and Road construction? How can it attract private capital to Belt and Road construction? Calvin Choi believes that the transparency of Belt and Road projects and the risk prediction of the project itself are very important.

Mr. Choi says Hong Kong has a considerable amount of money to allocate and deploy, yet the range of products on the market is not diverse enough. The Belt and Road Initiative will offer numerous opportunities and the projects should be more transparent in order to make investors aware of those opportunities. In addition, the projects focus on infrastructure. In spite of the long cycle and slow return, some private capital or family office funds in Hong Kong are willing to allocate their money to longer-term projects and they don’t want too much fluctuation. Therefore, such projects are quite attractive to them. Nevertheless, they should have an overall view of the project profit and risk profile.

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