By Alec Macfarlane
HONG KONG (Reuters Breakingviews) - Chinese online insurer ZhongAn soared in its trading debut on Thursday. The runaway success of this deal undermines the Hong Kong stock exchange’s push for a third board with looser listing terms to lure more technology companies. That underscores how the city is already well-placed to win new listings - and suggests tweaks to the existing board will do just fine.
The exchange proposes a new venue with two segments, to help it better compete with the likes of Nasdaq. That would allow companies with weighted voting rights; younger firms with limited financial track records; and secondary listings of mainland outfits with multiple classes of stock and existing offshore listings.
The proposals follow a disappointing 2016, when new floats fell to a three-year low. That is no coincidence. A previous move in 2015, rebuffed by the local securities regulator, followed the loss of Chinese e-commerce giant Alibaba’s initial public offering to the United States.
But listings naturally perk up as markets rally. Hong Kong has hosted a few successful new economy deals recently, including ZhongAn. Shares in selfie-app maker Meitu are up over 20 percent since a December IPO. Stock in WuXi Biologics, a biotechnology firm, popped 39 percent on its June trading debut.
And Hong Kong already has a lot to offer Chinese companies, including, uniquely, access to both international and mainland investors. It can make more sense for firms from the People’s Republic to list there. Take Meitu, for example, which is run by Mandarin speakers and which makes Chinese-language apps: that is a much easier sell for investors in Hong Kong than New York.
To be sure, U.S. shareholders and analysts are more familiar with tech business models, but a healthy pipeline of Hong Kong tech listings will help redress the balance. Potential deals could include Alibaba financial-services affiliate Ant Financial, peer-to-peer lender Lufax and Tencent’s publishing arm, China Literature.
Rather than further eroding Hong Kong’s reputation for corporate governance, by allowing either primary or secondary listings of companies with dual-class shares, it would be better to overhaul the main board. Lower profitability requirements, combined with adequate health warnings and improved disclosure, would help attract some earlier-stage companies. Hong Kong only needs a small upgrade to its technology.
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