According to experts, investors are wary of HKEX’s plans for early-stage technology listings. Easing the listing requirements for early-stage technology companies carries both risks and opportunities.
An arrangement by the Hong Kong Trade to permit beginning phase innovation organizations to rundown will extend the speculation universe for institutional financial backers, albeit these opportunties will be joined by a decent amount of dangers.
On December 18, the exchange’s new proposals’ consultation period ended.
Following a similar relaxation of listing rules in 2018 for biotech companies, the changes, which are likely to be implemented in the first half of 2023, relax revenue requirements for companies in five “specialist technology” industries, from manufacturers of electric vehicles and nanomaterials to producers of fake meat.
According to Irene Chu, head of new economy, life sciences, and technology at KPMG China in Hong Kong, the move would open up more opportunities for investors in sectors that will be crucial to Asia’s efforts to address climate change, food security, and the environment. She stated, “I expect the new regime will bring a new generation of high-quality, innovative companies to the Hong Kong market, despite the current slowdown in the global IPO markets.”
According to PwC’s estimates, between 10 and 15 specialized technology companies will list in Hong Kong under the new rule in 2023, raising between HK$50 billion and HK$60 billion.
READ ALSO: IPO prospects for Hong Kong in 2023: back from the brink RISKS However, due to the difficulties of evaluating the commercial prospects of such early-stage companies, Bonnie Yung, corporate and securities partner at Mayer Brown in Hong Kong, highlighted the risks for investors.
She stated, “It will definitely be harder to accurately value those proposed new companies” due to Hong Kong’s lack of research expertise and experience.
Yung added that financial backers would need to look close at extra exposures on pre-Initial public offering speculations, income, items and their possibilities for commercialisation, as well as Research and development venture, the personality and foundation of the pre-Initial public offering investors, and the foundation and experience of the vital people of the posting organization.
Jane Moir, head of research at the Asian Corporate Governance Association (ACGA) in Hong Kong, stated to AsianInvestor, “The 172-page consultation paper, released on October 19, adeptly sets out the hazards ahead, and it is a long list.”
In the Hong Kong section of an ACGA blog, In desperate Times, which was published on October 31, Moir listed the dangers, which include: how to value the businesses, the possibility of manipulation or speculation, the possibility that they will switch to new business models after listing, high volatility or illiquidity post-listing, and the lack of authority to evaluate a company’s progress in product development.
Competing with mainland China, HKEX hopes to turn around a bad year for new IPOs and bring business back to mainland China’s exchanges. HKD19.7bn was brought up in the principal half of this current year on HKEX, down from HKD214.3 billion in a similar period last year.
The mainland has been able to lure tech listings away from Hong Kong thanks to a series of listing relaxations implemented in recent years by the Star Market (officially known as the Science and Technology Innovation Board) in Shanghai and the ChiNext board in Shenzhen.
Chris Liu, senior portfolio manager, China-A investments, at Invesco Asset Management in Hong Kong, stated, “Mainland exchanges have attracted many more Chinese tech unicorns and “little giants”” in the past few years, and the Hong Kong exchange wants to play catch up.” Technology hardware and upstream components were poorly covered by HKEX, despite Hong Kong’s strong exposure to internet companies for investors.