Corporate finance & capital markets
Charltons’ has extensive experience in Hong Kong corporate finance and capital markets, advising issuers, sponsors and underwriters in securities offerings. We represent sponsors and underwriters as well as companies seeking listing and listed companies carrying out placings, rights issues and other capital raising in Hong Kong and the investment banks involved in such transactions.
We have a track record of acting for companies listing in Hong Kong on the Hong Kong Stock Exchange and are often involved at an early stage in connection with pre-IPO financing and restructuring, as well as any pre-IPO submissions to the Hong Kong Stock Exchange if issues arise relating to suitability for listing.
We also act for sponsors and underwriters on Hong Kong IPOs and are involved throughout the listing process with particular focus on sponsor compliance with the Hong Kong Listing Rules, law and regulation. We have significant experience in assisting sponsors liaising with regulators.
Our experience includes advising on:
- Hong Kong IPOs by companies based in Hong Kong, PRC and other jurisdictions on the Hong Kong Stock Exchange
- Hong Kong IPOs by mineral companies on the Hong Kong Stock Exchange under Chapter 18 of the Listing Rules of the Main Board of the Hong Kong Stock Exchange and ongoing compliance advice for listed mineral companies under the Hong Kong requirements
- capital raising in Hong Kong by way of rights issues, open offers, placing and issues of warrants, convertibles and other debt securities by Hong Kong, PRC and international companies
Hong Kong stock market
The main equity market/exchange in Hong Kong is The Stock Exchange of Hong Kong Limited, which is a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (the Exchange). The Exchange operates a securities market and a derivatives market in Hong Kong and the clearing houses for those markets, and was listed in Hong Kong in 2000. The securities market consists of the:
- Main Board of the Hong Kong Stock Exchange which allows established companies which are able to meet its financial requirements to raise further funds for growth; and
- Growth Enterprise Market (GEM) which is designed to accommodate small-cap companies wishing to access the capital markets, and is positioned as a stepping stone to the Main Board for smaller issuers.
The Hong Kong Stock Exchange is currently the world’s 6th largest stock exchange in terms of market capitalisation, and the second largest in Asia after Japan. In terms of IPO funds raised, however, Hong Kong ranked second (after New York) among the world’s exchanges in 2013, continuing a trend that has placed it in the world’s top five for the past 12 years.
The Hong Kong Stock Exchange is a leading international stock exchange which allows full access to foreign investors wishing to trade on its markets and offers a listing venue to foreign companies which are able to meet its requirements. The key advantage of Hong Kong and its stock exchange is its strategic position as the gateway between Mainland China and the rest of the world. Hong Kong has long been the preferred international listing venue for mainland Chinese companies looking to raise funds in the international capital markets and 863 Chinese companies were listed on the Hong Kong Stock Exchange at the end of November 2014 and accounted for some 59% of the total market capitalisation of the Hong Kong Stock Exchange.
The Hong Kong Stock Exchange has also been keen to list more international companies, and recent years have seen an increasing number of international companies listing in Hong Kong.
There were 1,735 companies listed on the Hong Kong Stock Exchange at the end of November 2014, of which 1,535 were listed on the Hong Kong Stock Exchange’s Main Board. A key factor attracting foreign companies to Hong Kong market is the depth of liquidity in both its primary and secondary markets.
There were 110 new listings on the Hong Kong Stock Exchange in 2013 which raised HKD 168.9 billion (up 85% from 2012). In the first 11 months of 2014, there were 105 new listings on the Exchange (including transfers from the Main Board to GEM) which raised HK$141 billion (up 46% compared to same period in 2013). The ease of raising funds post-listing is also attractive to foreign companies. In 2013, listed companies raised HK$209.9 billion post listing.
Hong Kong currently ranks as Asia’s top international financial centre. Among the benefits of listing on the Hong Kong stock exchange is that this provides overseas companies with access to investors in Mainland China, under the Qualified Domestic Institutional Investor (QDII) programme and the recently launched Shanghai – Hong Kong Stock Connect pilot programme. TheQDII programme allows Mainland Chinese financial institutions to raise funds in the domestic Chinese market and to invest US$76.79 billion in offshore securities markets. The importance of Mainland Chinese investors is expected to grow and the Exchange is positioning itself as the vehicle through which Mainland Chinese investors can invest internationally.
A first step in that process was the launch in November 2014 of the Shanghai – Hong Kong Stock Connect pilot programme which allows certain Mainland Chinese investors to invest directly in Hong Kong listed stocks for the first time. Although initially restricted to Hang Seng Index companies, it is likely that the programme will be expanded in the future. If this is the case, a Hong Kong listing will offer international companies even greater access to Mainland China’s investors.
The pilot programme allows investors in Hong Kong and China to trade eligible shares listed on the other market through the exchange and clearing house in their local market. Under the so-called Southbound Trading Link, Mainland investors can trade the constituent stocks of the Hang Seng Composite LargeCap and MidCap Indexes, and all H-shares with corresponding A shares listed on the Shanghai Stock Exchange.
Trading is subject to aggregate and daily quotas. Initially, the northbound trading link has an aggregate trading quota of RMB300 billion and a daily trading quota of RMB13 billion. The southbound trading link has an aggregate trading quota of RMB250 billion and a daily trading quota of RMB10.5 billion.
The quotas apply on a “net buy” basis, meaning investors can always sell their cross-boundary securities regardless of the quota balance. Mainland investors are restricted to institutional investors and individuals holding RMB500,000 in cash and securities, whereas all HK and overseas investors are eligible for North-bound trading.
Advantages OF LISTING IN HONG KONG
Key advantages of listing in Hong Kong as a listing venue are Hong Kong’s established legal system based on English common law and its regulatory framework which is on a par with those in other international finance centres, which give investors confidence in the Hong Kong stock market. It also offers many tax advantages, currency convertibility, free transferability of securities and no restrictions on capital flow.
In addition to fund raising opportunities, Hong Kong offers foreign companies the chance to raise their profile and visibility in China and the rest of the Asia-Pacific region. This has proved particularly attractive to companies in the luxury goods sector and high profile companies such as Prada, Coach, L’Occitane and Samsonite have listed in Hong Kong in recent years.
China’s position as a major consumer of energy, minerals and metals has also attracted a number of mining and natural resource companies to list in Hong Kong. These include Swiss commodities giant Glencore International AG, Russia-based United Company Rusal PLC, Kazakhstan copper miner Kazakhmys PLC and Brazilian metals and mining company Vale S.A. Vale S.A was also the first company to list on the Exchange in the form of Hong Kong depositary receipts (HDRs). The Hong Kong Stock Exchange’s Listing Rules allow overseas companies to list on the Main Board of the Hong Kong Stock Exchange (but not on its Growth Enterprise Market) in the form of HDRs rather than ordinary shares. This is intended to allow the Hong Kong listing of companies from jurisdictions which restrict the movement of shares abroad or prohibit an overseas share register or splitting of the share register.