Opinion: Second Listings in Hong Kong Offer Chinese Firms All the Comforts of Home
Christina Bao is head of global issuer services at HKEX.
An increasing number of Chinese mainland companies that have issued shares in international markets are returning to Asia to do secondary listings in Hong Kong. Along with a range of strategic benefits, there is comfort and satisfaction in a homecoming. These harder-to-measure factors often exert more pull than company executives may realize.
When HKEX added Chapter 19C to its listing rules in 2018, it served as a catalyst for many Chinese companies listed on Qualifying Exchanges around the world, to seek a secondary listing in Hong Kong. Such listings facilitate enhanced access to international investors, provide the companies with an internationally respected listing framework, and get them closer to the Chinese mainland market and its investors.
The successful listing of Alibaba in November 2019 paved the way for the many that are now following. This year, NetEase and JD.com debuted in Hong Kong, further accelerating and enhancing market interest not just from issuers, but also within the investing community. Secondary listings are making Hong Kong an even more important capital-raising venue with a growing ecosystem for innovation and the new economy.
Chinese companies are attracted to the idea of coming home to an innovative, highly liquid and efficient international market here in Hong Kong. But what does “homecoming” really mean? Some of the benefits of a homecoming can be harder to articulate and measure – they’re the comforts of home.
The benefits of home
Coming home means returning to a place of comfort, with familiar culture and language. Companies with years of international expansion and experience may not value this as much as issuers that have remained close to their roots, but it is felt by all
A homecoming listing enables a company to synchronize investor relations efforts with its social identity and its purpose as a corporation. In an international market on the other side of the globe, a company is often just a name, stock code, and a well-crafted narrative of their business prowess. At home, the same company is a beloved brand, familiar product, and a homegrown story built on pride and values. The hometown story often carries emotional resonance that transcends the corporate story. One way this connection to the home market can be expressed is via the valuation and liquidity of a company’s shares.
A homecoming also opens the door to greater engagement with the community. Companies that want to serve all of their stakeholders and run effective corporate social responsibility programs for the wider community, find greater success when they have both a financial and social presence in a market. The authenticity of a company’s actions in its home market is sometimes lost with an overseas’ listing.
Homecoming means gaining ready access to your company’s core base of stakeholders, from customers to business partners, and deepening your relationship by turning them into investors. These investors have a solid understanding of the local cultural, social, political and economic factors impacting a company and its performance. Some companies see it as a way of completing the circle, and rewarding those who have been at their side since the very beginning by allowing them to take part in the company’s financial growth.
At HKEX we believe investors should be able to trade Asia, in Asia. Coming home means being closer to the institutional investors who are focused on your region. Listing is not only a singular funding event, but also recognition of the company’s business, corporate governance and prospects. Issuers have found that a return to the Asian time zone makes it easier to communicate and create relationships with Asia-focused funds.
Knowing your home market and the influence of these more nuanced factors gives companies the confidence to undertake a secondary listing. They are confident that their home market will provide the needed support, liquidity, and assurance that come with the sense of belonging.
The timing is right
Companies may have been considering a homecoming for some time, but they required the right timing, regulatory environment and competitive opportunities to take the step. HKEX has made many market improvements in recent years, and the introduction of 19C acted as the final catalyst for companies considering a Hong Kong secondary listing.
For example, the strengths of the Hong Kong market have encouraged many U.S. investors to transfer their ADR holdings to Hong Kong shares, which has resulted in full fungibility between Hong Kong and U.S. markets. This has made secondary listings easier.
Our listing reform in 2018 helped cultivate the local ecosystem for biotech investments and made Hong Kong the world’s second largest biotech fundraising hub after only two years. This has encouraged a growth in local analytical capacity and expertise in both biotech and new economy industries, a new Hang Sang Tech Index, and more institutional investors and increased investor diversity. Meanwhile, Asian investors have accumulated wealth, and with it, greater appetite for risk and diversity in their investments, which creates demand for new home-coming listings.
Following the successful secondary listings of Alibaba, NetEase and JD, we have witnessed a migration in the liquidity of these companies’ shares from U.S. to Hong Kong. For example the size of Alibaba’s Hong Kong freely traded shares is now more than four times its initial secondary listing size as of July 2020, and its trading volume in Hong Kong is nearing that of its primary listing exchange.
There is more to come, with plans for further enhancements to the Stock Connect Schemes, greater ancillary product diversification and technological and market structure developments. This will support even better liquidity, greater choice and more opportunity for both issuers and investors.
Adding long-term value
HKEX has become a popular venue for high-quality secondary listings as it provides issuers with access to international investors while also getting closer to the Chinese mainland market and its investors.
The benefits of coming home are many. Some of these are easy to measure, while others are knitted into the very fabric or what it means to be at home – familiarity, comfort, cultural and social alignment. But whatever a company’s reason for seeking a listing in Hong Kong, once they have fulfilled the criteria to gain a coveted HKEx stock code, they will be warmly welcomed in this vibrant international market.
The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.
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