New HKEx Rules Spur Bumper Year In Hong Kong Capital Markets, But Lasting Impact Remains Unclear

Author:Mr Christopher W. Betts, Antony Dapiran and Paloma Wang
Profession:Skadden, Arps, Slate, Meagher & Flom (UK) LLP

In April 2018, the Hong Kong Stock Exchange's (HKEx) rule amendments permitting the listing of innovative, high-growth companies with dual-class share structures and pre-revenue biotech companies went into effect. The long-awaited amendments also facilitated the secondary listing in Hong Kong of Chinese companies with an existing listing on another stock exchange.

As if on cue, Xiaomi Corporation, a leading Chinese technology company, filed its listing application a few days later, to considerable fanfare. Xiaomi's eventual $5.4 billion initial public offering (IPO) in July 2018 was followed two months later by the $4.2 billion IPO of Meituan Dianping, a leading Chinese e-commerce platform for services. These were the two largest IPOs for Chinese private technology companies in Hong Kong's history. Meanwhile, leading biotech companies, including BeiGene and Innovent, took advantage of the new rules to complete $903 million and $421 million IPOs, respectively, as part of the first wave of pre-revenue biotech companies permitted to list on the HKEx.1

The HKEx's data indicates that it led all stock exchanges worldwide in terms of IPO funds raised in 2018, with the more than 200 companies listing on the HKEx raising a total in excess of $36 billion, up from approximately $14 billion in 2017. But whether the new rules will lead to a long-term increase in Hong Kong's competitiveness as a capital-raising venue remains to be seen. More than eight months after the rules went into effect, Xiaomi and Meituan Dianping remain the only two companies with dual-class share structures listed on the HKEx, and the exchange has made it clear that it intends to pick and choose which companies it considers sufficiently "innovative" to list under the rules. Notably, Tencent Music, the last major Chinese technology company to file an IPO in 2018, chose to undertake its $1.1 billion offering on the New York Stock Exchange.

Meanwhile, fewer than 10 pre-revenue biotech companies, all of which have China-focused businesses, have taken advantage of the new rules to list in Hong Kong (compared, for example, to the more than 400 biotech companies listed on the Nasdaq Stock Market), and questions remain as to whether Hong Kong can develop the necessary market ecosystem — including expertise among investors, professional advisers, analysts and the regulators themselves — to support a healthy long-term biotech market.

At the same time, rules permitting the trading of...

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