Mixed reactions to HKEX's New Board proposal

To list in Hong Kong, an issuer must meet certain financial or track record requirements. The listing framework does not allow pre-profit companies or companies with non-standard governance features to list. Moreover, it prohibits secondary listings of Mainland Chinese companies in Hong Kong. As a result, a number of Mainland Chinese and other high growth companies from new economy sectors such as Alibaba chose to list on venues other than HKEX.

To address the needs of startups, HKEX is considering opening up the market to a wider range of issuers.

“We are trying to diversify our market and give investors access to growth companies and give these growth companies from the new economy a path to listing in Hong Kong,” said James Fok, HKEX’s head of group strategy and project management at the seminar. “So far we have failed to address the needs of these growth companies.”

Completion of New Board proposal consultation

The proposed New Board is divided into two segments—New Board PRO and New Board PREMIUM. With less stringent listing requirements than the Main Board, each segment of the New Board is targeted at different types of issuers and investors.

New Board PRO caters for early-stage or pre-profit companies and would be open to professional investors. New Board PREMIUM is targeted at companies that meet the Main Board’s financial and other key requirements but are unable to satisfy certain criteria such as non-standard equity governance structures. It would be open to retail investor participation and would apply a regulatory approach similar to that of the Main Board.

HKEX aims to implement the New Board in the first half of 2018, as noted by Romnesh Lamba, co-head of market development at HKEX at the seminar.

Positive responses

The two-month public consultation ended on August 18. According to a HKEX spokesperson, they have received a large number of responses and have engaged a wide section of market stakeholders throughout the feedback process. HKEX is reviewing the feedback and will issue conclusions in due course.

Mok sees the New Board proposal as beneficial to both startups and the financial services sector.

“Hopefully I see with the New Board proposal, there will be more options created not just for technology companies to get listed and get funding, but also for the financial services sector to be really putting more effort or understanding into these companies,” he said.

Startups focused on disruptive technologies would probably be attracted to the New Board.

“The New Board would provide a platform for companies in artificial intelligence, virtual reality, augmented reality, data analytics and biotech spaces to get capital in a more efficient way,” said Wilson Chow, China-Hong Kong technology, media and telecommunications leader of PwC at the seminar.

Sharing the same view, HKSTP’s Wong said that biotech and AI-related companies will have a higher potential to take advantage of the New Board.

One example is stem cell biotech company Novoheart. Despite the maturity of stem cell technology, it may still take a few more years for companies like Novoheart to bring solid income. It has to rely on funding support to continue its R&D and grow its business. The New Board provides an opportunity for the biotech company to raise funds, according to Wong.