Harder for small S'pore firms to list in Hong Kong
Observers see spike in rejections over past year, amid HK exchange's tougher rules.
Singapore firms, particularly small-cap ones, are finding it harder to list in Hong Kong amid tough new rules that some say are a bid to lift the quality of companies on the exchange.
Lawyers and fund managers note that there has been a spike in the number of Singapore companies that failed to get a listing in Hong Kong over the past year, particularly in recent months.
Drew & Napier corporate and finance director Julian Kwek said the law firm has seen "half or even more" not making it in their applications, compared with an earlier success rate of over 50 per cent.
A fund manager who spoke on condition of anonymity said it is "unspoken that they are stricter on construction firms", while another source said those in the pharmaceutical and technology sectors with "no proven profitability" appear to get the green light for an initial public offering (IPO) with more ease.
They added that Singapore firms that failed to list in Hong Kong are stuck in limbo with little recourse.
To avoid the stigma of a failed listing bid, some companies withdraw their applications before they are rejected.
Although details on the number of unsuccessful Singapore firms are not available, the Hong Kong stock exchange did say the number of rejections has increased significantly, in tandem with the number of listing applications.
Based on the bourse operator's data compiled by PwC, 15 Singapore firms listed in Hong Kong in 2017, with the same number in 2018.
Last year, 372 new applications were accepted, up from 310 in 2017.
Unsuccessful ones, including those rejected, lapsed or withdrawn, rose by 38 per cent, from 222 in 2017 to 307 last year.
A key reason cited for the spike in unsuccessful bids is the "marked difference" in the way the exchange handles the applications, people involved in the process said.
For example, the time it takes for the exchange to get back to the applicants has stretched from two to three weeks, to five to six weeks.
A company's financial records are valid for only six months, so the longer processing time could mean a firm has to re-submit the data.
This has added to the costs of companies wanting to list in Hong Kong, the fund manager said, noting that it takes about HK$20 million (S$3.5 million) on average to hold an IPO in the city, the world's fourth-largest equity market.
Potential candidates also face more scrutiny.
Said Mr Kwek: "They tend to ask a lot more questions than they used to about what you're using the proceeds from the IPO for. They will ask about your intentions to expand to China and Hong Kong and how credible and genuine it is.
"They will also ask why do you need money because you can borrow from the bank, or when you have a lot of cash reserves."
Mr Robson Lee of law firm Gibson Dunn & Crutcher believes the exchange is cracking down on "sham" listings - shell companies that obtain a listing status which is then sold to businesses whose managements do not want to be subjected to the intense regulatory scrutiny of an IPO.
Although it seems harder to list in Hong Kong, he said it is not "mission impossible" for genuine aspirants with strong fundamentals and sustainable prospects. "There is now global competition among the major stock exchanges for good listing candidates to take the place of delisted companies and companies which have been suspended, and to stave off disruption from alternative avenues of funds," Mr Lee said.
Hong Kong reclaimed its pole position as the world's largest IPO market last year, with 218 new listings and total funds raised of HK$286.5 billion, up 123 per cent over the previous year.
Consultants Deloitte, KPMG and PwC expect about 200 new listings this year, with total fund-raising of about HK$200 billion.
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