New Shanghai tech board poses threat to Hong Kong for Chinese IPOs, Baker McKenzie says

Hong Kong is the top destination for Chinese companies seeking to list their shares outside China so far this year, but it could face a challenge for initial public offerings from Shanghai’s new technology innovation board, according to a new report by the law firm Baker McKenzie.

Photo credit: Ernie Chan

Thirty-four Chinese companies have raised or are expected to raise more than US$6.8 billion in IPOs in Hong Kong in the first six months of 2019, including new listings by the drug maker Hansoh Pharmaceutical Group and vocational training company China East Education Holdings this month.

“Hong Kong may begin to experience disruption as China’s [Sci-Tech] Innovation Board launches and encourages Chinese companies to list domestically in Shanghai,” the law firm said. “Indeed, there has already been some fallout from this as several companies have canceled their [Hong Kong] applications to instead resubmit to list domestically through the innovation board.”

The Shanghai Stock Exchange’s new “STAR Market” board, which is being described as China’s Nasdaq-style market, formally opened on Thursday, and trading is expected to begin within two months.

Six firms have already been approved to list their shares on the board, including Shenzhen ChipScreen Biosciences and Anji Microelectronics (Shanghai).

In terms of proceeds, Hong Kong has slipped behind the New York Stock Exchange and Nasdaq this year as the American bourses gained from several blockbuster IPOs, including plant-based burger maker Beyond Meat and ride-sharing giants Uber and Lyft.

Based on completed and announced listings, Hong Kong is expected to be the destination for 60 IPOs in the first half, raising US$7.5 billion for companies based in Hong Kong, mainland China, Malaysia, and other countries.

The city’s stock exchange changed its listing rules last year to encourage listings by technology companies with weighted voting rights and pre-revenue biotechnology companies.

Chinese ecommerce giant Alibaba Group Holding opted to list its shares in New York in 2014, but it is now planning a secondary listing in Hong Kong later this year. Alibaba owns the South China Morning Post.

The global IPO market raised US$54.4 billion through June 6, a 30% decline from the same period last year, according to data from Refinitiv.

Baker McKenzie said that there was a “strong undercurrent of positive sentiment” among companies seeking to list despite uncertainty created by the escalating trade tensions between the US and China and other geopolitical concerns.

The US has placed tariffs on nearly half of all Chinese-made goods as US President Donald Trump seeks to press Beijing to change its policies on trade, technology, and support of domestic companies.

“Looking further ahead, forecasts for a global recession in 2020 may see some smaller issuers decide to delay listing, while some may decide to expedite their fundraising activities this year for fear of a potential recession next year,” the law firm said. “US elections set for the same year will also grab attention.”