Caixin
Jun 17, 2020 06:11 AM
FINANCE

Hong Kong Could Attract $550 Billion in Great Listing Migration

A gong at the Hong Kong Exchanges & Clearing Ltd. Connect Hall.
A gong at the Hong Kong Exchanges & Clearing Ltd. Connect Hall.

The migration of U.S.-listed Chinese companies to Hong Kong for secondary listings could attract as much as $557 billion to the Asian financial hub, American investment bank Jefferies estimated in a report.

Hong Kong has become increasingly attractive to mainland-based companies as U.S. investors grow wary of Chinese companies after a series of fraud scandals prompted an increasingly hostile American regulatory environment. After the $310 million financial reporting fraud of Chinese Starbucks challenger Luckin Coffee Inc., the American Senate cleared a measure that could lead to delistings of Chinese stocks that don’t comply with certain financial transparency requirements.

This month, Chinese online gaming company NetEase initiated a secondary listing in Hong Kong to raise about $2.6 billion, followed by Chinese e-commerce giant JD.com Inc.’s planned $3.9 billion listing. Other Chinese companies have also announced intentions to delist from the U.S. and float shares in Hong Kong, including internet search giant Baidu.

Jefferies said 31 Chinese companies currently listed in the U.S. could potentially flock to Hong Kong. Analysts from UBS Securities Co. Ltd. said 42 U.S.-listed Chinese companies are eligible for secondary listings in Hong Kong. Currently, 251 Chinese companies are listed in the U.S. with a total market cap of $1.71 trillion, mostly in technology and consumer sectors.

Hong Kong has ample liquidity to accommodate listings of all 42 of the eligible companies, UBS analyst Zhu Xiaowei said. If they all choose a secondary offering within the next year, issuing 5% of their outstanding shares, they could raise about $27 billion, which would be 70% of Hong Kong’s total value of initial public offerings over the past 12 months, Zhu said.

Meanwhile, Hong Kong is also amending its exchange rules to lure mainland-based companies. Currently, companies traded in the U.S. with a secondary listing on the Hong Kong Stock Exchange (HKEx) cannot be included in Hong Kong’s benchmark Hang Seng Index or the Shanghai-Hong Kong Stock Connect Program.

In a major change announced last month, the Hang Seng for the first time will allow companies with primary listings overseas, as well as those with dual-class shares, to be included in the index. The earliest inclusion will be August, Hang Seng Indexes Co. Ltd. said.

The change means Hong Kong-listed Chinese technology giants such as Alibaba Group Holding, Xiaomi and Meituan Dianping will be included in the index. If so, Alibaba could account for as much as 3.8% of the benchmark index and 5% of the Hang Seng China Enterprise Index, driving passive fund flows of $450 million to $650 million to the Hong Kong market by funds that track the indexes.

“The evolution of the Hang Seng Index over the next 18 months will largely shift the index to a pure China one with a significant tech, e-commerce and IT weighting,” Jefferies said in the note.

Boosted by the hope of more secondary listings of mainland-based companies, shares of Hong Kong Exchanges and Clearing rose nearly 30% since April, on track to a new high after 2½ years. Several foreign investment banks have also raised their ratings on the stock.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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