Bringing Sustainable Success to the Hong Kong Primary Market China IPOs Conference 2005 Paul Chow Chief Executive, HKEx 28 September 2005
Dec 18, 2015
Bringing Sustainable Success to the Hong Kong Primary Market
China IPOs Conference 2005
Paul ChowChief Executive, HKEx
28 September 2005
2
Agenda
Highlight of Hong Kong Securities Market
Mainland China Dimension
HKEx’s Major Initiatives in Primary Market
Conclusion
3
13,332
3,599 3,4672,920
2,527
1,315 1,162 971 939 846 754 754 740 554 459 457 278 255 1090
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HKEx ranks 9th among global exchanges by market capitalisation
Jul 2005 market capitalisation, US$bn
US$ 939 bn as of Jul 2005
US$ 956 bn (HK$ 7.5 tr) as of 20 Sep 2005
US$ 939 bn as of Jul 2005
US$ 956 bn (HK$ 7.5 tr) as of 20 Sep 2005
4
7,935
5,895
3,226
1,9421,690
1,062 973772
583 581 536 469 377 341 322 261 164 122 79 650
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HKEx ranks 16th among global exchanges by equity turnover
YTM Jul 2005 turnover, US$bn
US$ 261 bn as of YTM Jul 2005
US$ 309 bn (HK$ 2.4 tr) as of 20 Sep 2005
US$ 261 bn as of YTM Jul 2005
US$ 309 bn (HK$ 2.4 tr) as of 20 Sep 2005
5
64.1
26.0 25.0
17.315.1
13.09.8 9.4
7.3 6.8 6.0 5.2 4.9 4.3 4.2 3.6 3.5 3.4 2.70.4
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HKEx ranks 4th among global exchanges by equity fund raised
YTM Jul 2005 equity fund raised, US$bn
US$ 17.3 bn as of YTM Jul 2005
US$ 19.6 bn (HK$ 153 bn) as of YTM Aug 2005
US$ 17.3 bn as of YTM Jul 2005
US$ 19.6 bn (HK$ 153 bn) as of YTM Aug 2005
6
Unit YTM Aug 2005 2004
Total turnover HK$bn 2,978 3,974
Average daily turnover HK$bn 18.2 16.0
Total # of derivatives contracts Number 16,116,157 19,629,692
Average daily # of derivatives contracts Number 98,269 80,533
# of listed companies - equity Number 1,108 1,096
# of new listings – equity Number 30 70
Fund raised by IPOs HK$bn 68.7 97.2
Fund raised in secondary market HK$bn 84.1 184.6
Total fund raised HK$bn 153.0 281.8
HKEx key market statistics
7
Agenda
Highlight of Hong Kong Securities Market
Mainland China Dimension
HKEx’s Initiatives in Primary Market
Conclusion
8
Since the 1980s, Hong Kong has played a key role in bridging between Mainland China and the world
Since 1993, over HK$1 trillion (as of 20 Sept 2005) of
equity funds were raised by Mainland China
enterprises, representing 50% of market total
Since 1993, over HK$1 trillion (as of 20 Sept 2005) of
equity funds were raised by Mainland China
enterprises, representing 50% of market total
2005
Promote listing of foreign-controlled companies with Mainland operations
1980 1993 2003
Many HK listed companies had manufacture operations in Pearl River Delta
HK- or foreign-incorporated Mainland enterprises listed in HK as Red Chips
H-shares market developed
Some H-share & Red-Chip companies dual listed on HK & overseas markets
H-shares Index Futures launched
2004
H-shares Index Options launched
iShares FTSE/Xinhua A50 China Tracker launched
Stock options, futures & warrants for individual Mainland enterprises developed
19941960-80
Mostly British hongs, utility companies& property companies
9
1962
Hongkong Bank
Whampoa Dock
HK Land
China Light
KM Bus (1933)
HK Electric
HK Telephone
Yaumati Ferry
HK Tram
Wheelock
Jardine
Swire
Lane Crawford
Kwong Sang Hong
GI Cement
1973
Hongkong Bank
HK Land
Jardine Matheson
Hutchison Intern’l
E.A. Navigation
New World Dev.
Wharf
China Light
Wheelock Marden
Taikoo Swire
HK Telephone
HK Electric
Hang Seng Bank
Whampoa Dock
HK & Shanghai Hotels
1983
Hongkong Bank
Hang Seng Bank
China Light
Hutchison
HK Electric
HK Land
Wharf & Godown
Swire Pacific
Jardine Matheson
General Oriental
HK Telephone
Swire Properties
Cheung Kong
SHK Properties
New World Dev.
1993
HSBC
HK Telecom
SHK Properties
Hang Seng Bank
Hutchison
China Light
Cheung Kong
Swire Pacific
Henderson Land
Wharf
HK Land
HK Electric
New World Dev.
Jardine Matheson
CITIC
Aug 2005
HSBC
China Mobile
Hutchison Whampoa
CNOOC
Standard Chartered
Hang Seng Bank
Cheung Kong
SHK Properties
Bank of China
Swire Pacific
PetroChina
CLP Holdings
HK & China Gas
China Netcom
MTR
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
Largest companies since 1962 in term of market cap. Other largest companies in 1973/1983/1993 in term of market cap. New largest companies in Aug 2005 in term of market cap. Mainland enterprises
Of the 15 largest companies in 2005, 5 of them are Mainland enterprises
10
YTM Aug 2005
Definition
No. of Listed Issuers
Main Board GEM Total
H shares Enterprises incorporated in the Mainland which are either controlled by Mainland Government entities or individuals
76 38 114
Red chips Enterprises incorporated outside of Mainland and controlled by Mainland Government entities
85 3 88
Non-H shares Mainland Private Enterprises
Enterprises incorporated outside of Mainland and controlled by Mainland individuals
84 30 114
Sub-total 245 71 316
Mainland operating enterprises
Other enterprises listed in Hong Kong that have substantial operations in the Mainland
204 47 251
TOTAL 449 118 567
Definitions of Mainland enterprises
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Mainland China enterprises contribute significantly to the Hong Kong securities market
YTM Aug 2005 Unit TotalMainland
enterprises % of total
# of listed issuers Number 1,108 316 29%
# of new listings – equity Number 30 15 50%
Market capitalisation HK$bn 7,360 2,420 33%
Average daily turnover - equity HK$bn 14.8 6.6 45%
Funds raised by IPOs HK$bn 68.7 61.7 90%
Fund raised in secondary market HK$bn 84.1 12.0 14%
Total fund raised HK$bn 153.0 73.9 48%
12
Top 10 IPOs since 1986 are all by Mainland enterprises
Rank Company Listing date Type Fund raised (HK$mn)
1 China Unicom 22 Jun 2000 Red Chip 43,608
2 China Mobile 23 Oct 1997 Red Chip 32,665
3 China Life 18 Dec 2003 H shares 26,714
4 China Petro. & Chemical 19 Oct 2000 H shares 26,681
5 China Shenhua 15 Jun 2005 H shares 22,976
6 PetroChina 7 Apr 2000 H shares 22,330
7 BOC Hong Kong 25 Jul 2002 Red Chip 20,516
8 Bank of Communications 23 Jun 2005 H shares 16,835
9 Ping An Insurance 24 Jun 2004 Red Chip 14,337
10 SMIC 18 Mar 2004 Pvt. enterprise 13,858
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7 of the top 10 IPOs in 2005 are by Mainland enterprises
Rank Company Listing date Type Fund raised (HK$mn)
1 China Shenhua Energy 15 Jun 2005 H shares 22,976
2 Bank of Communications 23 Jun 2005 H shares 16,835
3 China COSCO 30 Jun 2005 H shares 9,537
4 Shanghai Electric Group 28 Apr 2005 H shares 5,054
5 Foxconn 3 Feb 2005 Hong Kong 3,711
6 Guangzhou R&F Properties 14 Jul 2005 H shares 2,284
7 AAC Acoustic Tech. 9 Aug 2005 Pvt. enterprise 980
8 Xinyi Glass 3 Feb 2005 Hong Kong 836
9 Dynasty Fine Wines 26 Jan 2005 Red Chip 776
10 I.T. 4 Mar 2005 Hong Kong 667
14
% of market capitalisation and equity turnover contributed by Mainland enterprises increase significantly over time
% of market capitalisation % of equity turnover no. of Mainland enterprises
5% 5% 5%
9%
16%
14%
21%
27% 27% 27%
30% 30%
33%
12%
9%9%
12%
38%
28%26%
29%
42%
33%
46%
49%
45%
3850 53
64
90101
111
127
152
198
242
300
316
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Aug
2005
0
50
100
150
200
250
300
350
15
Mainland enterprises listed in Hong Kong cover a diversified range of industries
Industry No. %
Technology (telecommunications, IT and electrical & electronic components) 72 23
Real estate 24 8
Raw materials and chemicals 23 7
Energy and power 23 7
Conglomerate 22 7
Pharmaceutical 18 6
Transportation 15 5
Financial services (banks, insurance companies and investment companies) 14 4
Food 11 3
Automobile 10 3
Miscellaneous 84 27
Total 316 100
As of Aug 2005
16
Region No. %
Pan Pearl River Delta (Guangdong, Fujian, Guizhou, Hainan, Hunan, Jiangxi, Sichuan and Yunnan)
83 26
Bohai Gulf (Beijing, Hebei, Shandong and Tianjin) 56 18
Yangtze River Delta (Jiangsu, Shanghai and Zhejiang)
50 16
Nationwide SOE (with businesses all over the Mainland e.g. China Mobile, PetroChina)
42 13
Hong Kong (Mainland companies with major businesses conducted in HK e.g. BOC Hong Kong, Shenyin Wanguo)
29 9
Multi-regions (with businesses in more than one province e.g. GOME Electrical, China Gas)
24 8
Northeast (Heilongjiang, Jilin and Liaoning) 14 4
Others (Anhui, Chongqing, Gansu & Qinghai, Henan, Hubei, Inner Mongolia, Ningxia, Shaanxi, Shanxi, Tibet and Xinjiang)
18 6
Total 316 100
Mainland enterprises listed in Hong Kong cover many different regions
As of Aug 2005
22 provinces
5 autonomous region (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang)
4 municipalities directly under the Central Government (Beijing, Chongqing, Shanghai and Tianjin)
22 provinces
5 autonomous region (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang)
4 municipalities directly under the Central Government (Beijing, Chongqing, Shanghai and Tianjin)
17
Agenda
Highlight of Hong Kong Securities Market
Mainland China Dimension
HKEx’s Initiatives in Primary Market
Conclusion
18
Challenges to HKEx in relation to Mainland China enterprises
Solutions
Principles HKEx’s initiatives
IPO activities • Continuous supply of IPO applications
• Increasing complexity of IPO transactions
• Enhance listing decision making efficiency
• Enhance operational efficiency
• Review of new structure of listing decision-making
• Enhancement of internal operations & processes of Listing Division
Fund raising platform
• Diversified fund raising needs for different Mainland enterprises
• Offer robust and flexible fund raising platforms to meet market needs
• Promote HK as a premier capital formation centre for Mainland enterprises
• Review of GEM• Mainland liaison and
promotional activities
HKEx’s initiatives related to primary markets are parts and parcels to the success of Hong Kong as a premier capital formation centre for Mainland enterprises
19
Challenges to HKEx in relation to Mainland China enterprises
Solutions
Principles HKEx’s initiatives
Market quality assurance
• Limitations on cross-border enforcement of non-Hong-Kong-based Mainland issuers
• Concentrated ownership on state and individual levels
• Enhance cross-border enforcement
• Continue to uphold and enhance disclosure based regulatory regime based on international standards
• Closer cooperation with SFC, CSRC, 2 Mainland exchanges and other enforcement authorities
• Statutory backing of certain provisions of the Listing Rules
• Continual promotion and education of corporate governance
• Enhancement of dissemination of listed issuers’ disclosures
HKEx’s initiatives related to primary markets are parts and parcels to the success of Hong Kong as a premier capital formation centre for Mainland enterprises (cont’d)
20
Main Board GEM Total
New applications accepted
YTM Aug 2005
2004
66
96
14
34
80
130
Approvals in principle granted by the Listing Committee
YTM Aug 2005
2004
44
59
7
23
51
82
No. of newly listed companies YTM Aug 2005 27 3 30
No. of newly listed companies in 2004 49 21 70
Continuous supply of IPO applications in the pipeline
21
HKEx’s initiatives in primary market: IPO activities
Next StepsCurrent progress
• Published consultation paper in Feb 2005 on:
Composition and operation of Listing Committees
Proposals for a more efficient framework for decision-making in matters such as listing applications and suspected breaches of Listing Rules
Appointment of an adjudicator as first instance disciplinary decision-maker and aspects of the adjudicator’s procedures
• Received 18 submissions including 7 from industry associations
• Responses are published on HKEx website in May 2005
• Finalise conclusions and Listing Rule amendments with the SFC, HKEx Listing Committee and HKEx Board
• Issue consultation conclusions by end of 2005
Review of new structure of listing decision making
Review of new structure of listing decision making
22
HKEx’s initiatives in primary market: IPO activities
Next StepsCurrent progress
• Set up an enhanced case database to capture corporate information of listed issuers and directors
• Organised professional training programmes for Listing Division (e.g. HKAS/IFRS)
• Review operational procedures in key listing areas to further improve process automation and response efficiency
• Further strengthen senior management team of Listing Division
Mainland China liaison
Legal and accounting
Enforcement
Enhancement of internal operations of Listing Division
Enhancement of internal operations of Listing Division
23
HKEx’s initiatives in primary market: Fund raising platform
Next StepsCurrent progress
• Established an internal working group to develop proposals for the comprehensive review of GEM
• Completed internal research on historical performance of GEM
• Prepared comparisons of overseas second board designs
• Seek informal views from members of HKEx Listing Committees, members of HKEx Board, professional bodies and market participants
• Issue public consultation via a formal consultation paper by end of 2005 or early 2006 to:
Outline possible strategies to strengthen liquidity and corporate governance of GEM
Outline options to improve the robustness of the GEM platform to meet issuers’ capital-raising needs
Review of GEMReview of GEM
24
HKEx’s initiatives in primary market: Fund raising platform
Next StepsCurrent progress
• Regular communications with Mainland authorities to exchange views on regulations and market developments
• Organised and participated in over 100 conferences with over 6,600 participants including Mainland enterprises and intermediaries
• Continue to leverage HKEx BJO and special branch representatives in Shanghai & Guangzhou to undertake Mainland liaison activities
• Continue to organise major conferences to promote Hong Kong securities market:
Conference in Fuzhou in Sep 05
Conference in Wuhan in Dec 05
Mainland liaison and promotional activities
Mainland liaison and promotional activities
25
HKEx’s initiatives in primary market: Market quality assurance
Next StepsCurrent progress
• SFC issued proposed Securities and Futures (Stock Market Listing) Rules and guidelines (SMLR) in Jan 2005
• FSTB issued Consultation Paper on Proposed Amendments to the SFO in Jan 2005
• HKEx submitted combined response to SFC and FSTB in Mar 2005
• Prepare a comparison of regulatory regimes in UK, US, Australia and under IOSCO principles on financial reporting, connected transaction and price sensitive information
• Continue discussions with FSTB and the SFC on the draft SMLR, and solicit inputs from market practitioners
• Propose to enshrine the following provisions in statute:
Regular financial reporting obligations
Disclosure obligations of corporate transactions that require prior independent shareholder approval (e.g. connected transactions)
Obligation to disclose price-sensitive information
Statutory backing of certain provisions of the Listing Rules
Statutory backing of certain provisions of the Listing Rules
26
HKEx’s initiatives in primary market: Market quality assurance
Next StepsCurrent progress
• Implemented revised Code on CG Practices and CG Report in Jan 2005
• Implemented revised listing rules on CG in Mar 2004
• Implemented revised Code Provision on internal controls and the relevant disclosure requirements in the CG Report in Jul 2005
• Conducted training programmes for 124 finance, accounting executives and board secretaries of H-share companies
Continual promotion and education of corporate governance
Continual promotion and education of corporate governance
• Allow time for listed issuers to adapt to new CG provisions
• Analyse responses from issuers on questionnaire sent out in Jul 2005 regarding market readiness to comply with the recent changes
• Continue to promote a compliance culture through issuer and investor education
27
HKEx’s initiatives in primary market: Market quality assurance
Next StepsCurrent progress
• Proposals on total abolition of paid advertisements and mandatory use of eSubmission system (currently account for 24% of submissions) endorsed by HKEx Listing Committee in Jul 2005
• Implemented a Disaster Recovery Site for HKEx website in Sep 2005 to enhance its resilience as a central dissemination platform for issuer disclosures in the future
• Establish an enhanced dissemination infrastructure of listed issuer information
• Enhance security features and user-friendliness of the eSubmission system
• Publish Exposure Paper by end of 2005 to seek public views on:
Transitional arrangements (e.g. summary announcement vs. notifications)
Proposed rule changes
Requirement of listed issuers to establish their own websites and/or use of third party websites
Enhancement of dissemination of listed issuers’ disclosures
Enhancement of dissemination of listed issuers’ disclosures
28
Agenda
Highlight of Hong Kong Securities Market
Mainland China Dimension
HKEx’s Initiatives in Primary Market
Conclusion
29
Hong Kong competitive advantages
• China’s growth & development presents tremendous business opportunities
• Hong Kong is in a unique & favourable position to capture these opportunities
- No foreign exchange controls & withholding tax
- No capital gain tax, and no controls on foreign investment and investors
- Freely convertible currency
- Proximity to Mainland China
- Active retail & institutional participation
- A free, transparent and fair securities marketplace
- Rule of Law
- International accounting standards and management best practices
- Abundant of professional expertise (investment bankers, accountants, lawyers, valuers)
• HKEx is committed to build on its historic success and further strengthen its role as a premier capital formation centre for China enterprises as well as an international financial centre
30
HKEx’s strategic focus
Focus on core market operations:
• Listing• Cash & Derivatives
Trading• Clearing• Information Services• Market systems
Focus on Hong Kong and Mainland China
Operate a quality market through enhancing regulation and market infrastructureGoal
Geographical focus
Business focus
31
HKEx’s mission statement
The mission of HKEx is to operate a world-class marketplace for
Hong Kong and Mainland China securities and derivatives products.
By offering issuers access to international capital markets and maintaining an
open, secure, fair, orderly, efficient and transparent
marketplace, HKEx contributes to Hong Kong’s status as an international
financial centre and the premier capital market for Mainland China.
By servicing China’s substantial long-term demand for capital and exchange
services in accordance with international standards and practices, HKEx has
the potential to become one of the world’s pre-eminent exchanges.
The mission of HKEx is to operate a world-class marketplace for
Hong Kong and Mainland China securities and derivatives products.
By offering issuers access to international capital markets and maintaining an
open, secure, fair, orderly, efficient and transparent
marketplace, HKEx contributes to Hong Kong’s status as an international
financial centre and the premier capital market for Mainland China.
By servicing China’s substantial long-term demand for capital and exchange
services in accordance with international standards and practices, HKEx has
the potential to become one of the world’s pre-eminent exchanges.
. .