HONG KONG: Hong Kong’s stock exchange has rejected the application for a potentially multimillion-dollar listing involving one of Asia’s richest men, as the city — a hot spot for initial public offerings — has come under increasing regulatory scrutiny. The exchange in June sent back the IPO application of AMTD Strategic Capital Group, which was filed the previous month, deeming it to be “substantially incomplete” without elaborating on what it found lacking, according to a list posted on its website.
The commercial-insurance brokerage firm was seeking to potentially raise about $200 million, according to reports. AMTD Strategic Capital is majority owned by AMTD Group, an Asian financial firm founded in 2003 whose other businesses include an investment bank. Among the group’s owners are CK Hutchison Holdings Ltd., the Hong Kong-based conglomerate controlled by billionaire Li Ka-shing, and Morgan Stanley’s private-equity arm. Such rejections are rare in Hong Kong: This was only the sixth time in four years that it has occurred, according to exchange data. AMTD and CK Hutchison didn’t immediately respond to a request for comment. Morgan Stanley declined to comment. A spokesman for the exchange operator, Hong Kong Exchanges & Clearing Ltd., didn’t offer any details beyond what it had posted online.
In recent years, Hong Kong has been trying to strike a balance with its regulatory efforts as questions about the effectiveness of such measures have persisted. Its exchange operator earlier this year revived a debate over whether it should allow listings of companies with dual-class shareholding structures, a proposal the city’s securities regulator shot down in 2015. Hong Kong lost the $25 billion listing of Chinese e-commerce titan Alibaba Group Holding Ltd. to New York in 2014 in part because it wouldn’t permit companies with that structure to list shares. Hong Kong IPOs have been dominated for some time by financial companies, contributing to the market’s generation of more money than any other in 2015 and 2016, according to Dealogic data. However, so far this year the city has dropped to third, with IPOs valued at a collective $8.4 billion of IPOs. By comparison, $20.9 billion has been raised in New York and $11 billion in Shanghai.
The Hong Kong exchange’s statement on AMTD’s thwarted IPO emerged in the wake of a selloff late last month of more than a dozen small-capitalization companies listed on the city’s Growth Enterprise Market, home to many so-called penny stocks that trade for less than one Hong Kong dollar (13 U.S. cents). Some shares tumbled more than 90%. What caused the plunge remains unclear. However, in a speech earlier this month, the chief executive of the Securities and Futures Commission said that the regulator had had a “fundamental rethink” about how it polices the markets and that it would take a more proactive approach to market intervention. Ashley Alder cited the reputational damage done by an “accumulation of serious governance and misconduct issues,” including the small-cap crash. In response, Charles Li, the exchange operator’s CEO, wrote in a blog posting Sunday that officials should balance the desire for tougher regulation with preserving smooth operation of the market at large. “It’s not worth getting a few extra dollars in revenue and allowing bad actors onto our market, which hurts the overall market reputation and diminishes our business,” he wrote.
There have also been questions about the sharing of regulatory responsibility between the exchange and the SFC. In his posting, Mr. Li said ensuring a violation-free market, even with the parallel work of the SFC, would be “very difficult.” The SFC didn’t immediately respond to a request for comment. To be sure, sizable IPOs continue to be launched in Hong Kong and a flurry of activity is expected toward the end of 2017 — particularly among companies whose financial years ended in June, said a person familiar with the matter. Last week, Zhongyuan Bank Co. became the former British colony’s third billion-dollar IPO of the year, with the large regional Chinese commercial lender raising some US$1.04 billion.