Hong Kong revamps IPO rules to attract tech listings

The Hong Kong stock market has decided to loosen its rules for controversial dual-class shares normally seen in technology startups after the city lost mega listings such as Alibaba.

In a reform announced on Friday, the Hong Kong Exchanges and Clearing, the city's local bourse, said it will reform the listing rules to attract blockbuster listings, a compromise made especially for innovative sectors including technology companies.

The new rule, which had long been objected by the securities regulator in the city, will accommodate innovative companies that normally use weighed voting rights (WVR) -- commonly known as dual-class shares, which render certain shareholders, especially top executives, greater voting rights to control the majority of board appointments.

In 2014, Alibaba abandoned Hong Kong as its favoured venue of listing and held its record $25 billion IPO in New York, as the special administrative region rejected its dual-class structure proposal.

But the Hong Kong stock exchange has also set limitations on the new listing forms this time. Companies with dual-class shares structures are required to have a minimum expected market capitalization of HK$10 billion. It would also need to meet a higher revenue test of HK$1 billion in the full financial year before listing in case the expected market capitalization is below HK$40 billion, the new rule states.

The reform has also left the door open for the first time to pre-revenue companies -- only to the biotech sector at beginning -- to diversify the market portfolio. Pre-revenue companies listing under the new biotech chapter are required to have a minimum expected market capitalization of $1.5 billion.

"Think back to just four years ago, in 2013: the thought of welcoming pre-revenue companies or those with weighted voting rights would've been almost unthinkable," Charles Li, chief executive of the stock exchange, wrote in his blog. "But as the years have passed, and more exciting new internet and ecommerce stars have emerged in China alongside the further growth of US tech giants, we began to ask ourselves if we were doing enough to compete."

A number of Chinese technology companies including Xiaomi and Alibaba's Ant Financial are all reportedly to kick off initial public offerings soon elsewhere in the world. The loosening rule in Hong Kong is likely to make the city again a potential listing destination for these firms.

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