HONG KONG (Reuters) - Hong Kong Exchanges and Clearing, which faces a slowing pipeline of IPOs from mainland China, is looking to attract listings from far-flung markets such as Israel and Russia in a bid to diversify its revenue sources.
Asia’s largest listed bourse, which is the primary market for many of China’s biggest companies, also plans to initiate trading in new asset classes including gold futures, depositary receipts and carbon emissions, and wants to lure sovereign wealth funds to set up shop in the city.
“The Hong Kong Exchange not only aims to attract foreign firms to list in Hong Kong, but also attract investors and sovereign funds to set up offices in the city,” Ronald Arculli, chairman of Hong Kong Exchanges and Clearing, said in an interview for the Reuters Global Exchanges and Trading Summit.
More managers of multi-billion government funds would boost liquidity and broaden the investor base in Hong Kong, Arculli said. Huge funds run by China, Singapore and governments in the Middle East have become increasingly prominent investors globally in the wake of the credit crunch that began last year.
HKEx officials have been traveling the world looking to attract firms to make primary or secondary listings in Hong Kong -- an effort that Arculli said had yet to result in listings from the targeted new markets, although potential deals are in the works.
COMPETITION FOR LISTINGS
This past weekend, Arculli was in Israel and met with officials of the Tel Aviv bourse and executives from local companies including Israel Corp, owner of container shipper ZIM Integrated Shipping Services. ZIM has expressed interest in a dual listing in Hong Kong and Tel Aviv.
Russia’s United Company RUSAL, the world’s top primary aluminum producer, is considering moving a planned IPO from London to Hong Kong, media reports have said.
Russian molybdenum miner SMR said in February that it plans to float at least 25 percent of the firm in Hong Kong by the fourth quarter.
Hong Kong, the world’s seventh-largest bourse by value, faces competition for listings from bigger financial centers such as London and New York, as well upstarts such as Dubai, which are also aggressively courting listings.
Sam Hilton, an analyst with Fox-Pitt Kelton (Asia) Ltd, said Hong Kong’s push to bring in companies from elsewhere and to develop new products is the right move for the longer term.
“I think it makes sense, but as management have themselves noticed, it is not a short-term strategy, so I would not expect immediately significant payoff,” Hilton said.
Arculli said the Hong Kong bourse, which is 5.9 percent owned by the Hong Kong government, boasts lower listing and compliance fees than the New York and London boards.
“Hong Kong is a liquid market, turnover is active, and the listing and post-listing market is broad and mature,” Arculli said, noting that the Chinese territory boasts a simple tax system, with no tax on dividends or estate duty.
About 45 percent of Hong Kong’s investor base is international institutions, 25 percent is local institutions and 30 percent is made up of local retail investors.
LOOKING FURTHER AFIELD
HKEx officials took 30 trips last year to countries including Japan, Malaysia, Taiwan, Vietnam, India, Kazakhstan, Russia, Mongolia and the United States. Visits are planned to Russian in June and California and Canada later in the year.
Hong Kong has been compelled to look further afield for listings since Beijing lifted a ban on domestic IPOs in mid-2006, which resulted in a surge in listings on the Shanghai bourse.
“From 2004 to 2006, the Hong Kong exchange aimed to draw mainland firms for listings. After 2006, we did not give up the China market, but at the same time, we have been promoting Hong Kong as a financial centre outside Asia,” said Arculli.
He expects the Hong Kong exchange to launch gold futures in the third quarter, while the details on depositary receipts could be announced as early as the second quarter. He said a number of exchanges elsewhere plan to cooperate with Hong Kong on emissions trading but declined to give details.
Daily turnover in Hong Kong averaged HK$98.4 billion ($12.6 billion) in the first quarter, down 26.6 percent from the previous quarter.
Companies planning a combined $7 billion worth of IPOs in Hong Kong have withdrawn or postponed their offerings since the start of the year. UBS expects funds raised from Hong Kong IPOs this year will decline by 57 percent from a year ago.
Shares of Hong Kong Stock Exchange have plunged 37.7 percent from a November peak. At about 26.3 times forecast earnings, HKEx still trades at a premium to Singapore Exchange’s 22 times and Australia’s 17 times.
(For summit blog: summitnotebook.reuters.com/)
Editing by Tony Munroe and Edmund Klamann
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