Mixed reactions to HKEX's New Board proposal

 Mixed reactions to HKEX's New Board proposalTech startups have been growing rapidly in Hong Kong in recent years spurred by a wide array of incubation and accelerator programs initiated by various parties. It is clear that funding is a key challenge most startups face, particularly in their early stages.

Aiming to achieve better diversity in the local stock market and improve the access to listings particularly for new economy companies, Hong Kong Exchanges and Clearing (HKEX) put forward a concept paper in June to seek public feedback on the proposed establishment of a New Board. New economy companies are high-growth companies from innovative sectors such as the technology-related industry.

The New Board proposal has received positive responses from some within the local IT community but with concerns about listing.

Challenge of getting funding

Like many other markets around the world, many startups in Hong Kong are struggling to raise funding to support their research and development.

“Getting financial support is the most difficult challenge for startups in Hong Kong,” said Charles Mok, legislative councillor (IT sector) at a joint seminar hosted by HKEX and Cyberport on the New Board proposal last month.

He attributed this to a few factors. There is a lack of mergers and acquisitions (M&A) of startups by international companies in Hong Kong. Furthermore, many investors do not have an adequate understanding of tech startups’ businesses or their technologies, and so are hesistant to invest in them. 

“I heard from the capital community that there is a lack of knowledge about the technology sector in general in Hong Kong,” he noted.

Hong Kong Science and Technology Park (HKSTP) hosts a lot of pre-revenue startups, which are looking for ways to get funding.

“For companies within HKSTP, listing on the Main Board is a very distant goal to reach,” said HKSTP’s CEO Albert Wong in an interview with Computerworld Hong Kong. “To achieve at least three years of cash flow track record is quite a long way for many of our startups.”

These startups in HKSTP can only rely on angel investors, venture capitalists or M&A to accelerate growth.

Gaps in the current listing regime

The existing Hong Kong stock market features a high concentration of old economy sectors, particularly the financial and property sectors. As stated in the HKEX’s New Board concept paper, companies from old economy sectors listed on the local stock market make up 44% of the total market capitalization, whereas new economy industries only account for 3%.

The current listing regime does not cater to the needs of high growth companies from new economy sectors.