HONG KONG (Reuters Breakingviews) - So much for Hong Kong’s Hollywood ending. STX Entertainment, the studio behind “Bad Moms” and Jackie Chan’s “The Foreigner,” allowed its proposed initial public offering in the Asian financial hub to lapse this week. A rocky market is easy to blame, but losing an international issuer with Chinese backers will sting the exchange, which has struggled to escape its parochial proclivities.
The pitch from founder Robert Simonds might have received a warmer welcome six months ago when STX first disclosed plans to go public. Renowned local investors and production partners such as Tencent and Alibaba brightened the marquee. STX also offered a welcome alternative to the staid crop of tycoon-led property and financial enterprises that dominate the market. What’s more, it represented a fresh foreign beginning after U.S. fashion retailer Coach, now named Tapestry, and Swiss miner Glencore ditched their secondary listings in the Fragrant Harbour last year.
A roughly 20 percent fall in the Hang Seng Index since April helped flip the script. An original business model may have been recast as unfamiliar and risky, especially an unprofitable one like STX’s. Other hot newcomers also might have stolen the scene. Innovent Biologics, part of a wave of biotech firms being wooed by the bourse, priced shares at the top of its range on Wednesday.
STX could yet renew its application, but may have better luck back home with an IPO or even a sale to one of the proliferating listed U.S. shell companies. That would leave China’s special administrative region canvassing anew for companies overseas willing to brave its quirks.
Debut pricing restrictions, cornerstone investors, prolonged trading freezes and a large contingent of mom-and-pop owners can be tolerated in a rising market, but introduce frightening volatility during downturns. There is a reason only about 7 percent of HKEX stocks come from beyond Greater China. On the New York Stock Exchange, over a fifth of the listings and nearly a third of the $30 trillion in market value is non-American. To rewrite the story, Hong Kong will have to straighten out its red carpet.
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