HONG KONG (Reuters) - Hong Kong Exchanges & Clearing Ltd (HKEX) (0388.HK) is still in talks with oil giant Saudi Aramco, with the bourse’s planned IPO investment link with China key to clinching the potential listing, Chief Executive Charles Li told Reuters on Tuesday.
In February, Li said the stock exchange would bank on its role as a gateway to mainland China’s deep-pocketed investors to win the coveted listing of state oil firm Saudi Arabian Oil Co [IPO-ARMO.SE].
Addressing a Reuters Newsmaker event, Li, who has previously worked with JPMorgan and Bank of America Merrill Lynch in China, said “the talk will never stop” in trying to woo Aramco, with China now one of the largest importers of Saudi crude.
Li said, however, that a so-called primary stock connect, which would allow mainland Chinese investors to participate in Hong Kong initial public offerings (IPOs), would be pivotal in convincing Aramco to list in the Asian financial hub.
He did not give a timeline for the start of the primary connect programme, the talks for which are ongoing.
Saudi authorities plan to list up to 5 percent of the world’s largest oil producer on the Saudi stock exchange in Riyadh, the Tadawul, and also one or more international markets, potentially raising as much as $100 billion.
Saudi Arabia favours New York for the main foreign listing, even though some financial and legal advisers have recommended London as a less problematic and risky option, sources told Reuters last month.
“Having a rival liquidity pool that is supported by domestic Chinese liquidity that trades and invests at a very different valuation ... allows them to walk on two legs globally at different clocks of trading,” Li said.
Li also said he expects to conclude final recommendations “in the coming weeks” on rules for a new trading board, aimed at luring secondary listings from Chinese firms such as Baidu Inc (BIDU.O), as well as “new-economy” startups in sectors such as the Internet and bio-technology.
HKEX started public consultation in June on the possibility of a board allowing listings of companies with dual-class share structures, such as Alibaba Group Holding Ltd (BABA.N). Alibaba was unable to list in Hong Kong under current rules, so the e-commerce firm took its $25 billion IPO to New York instead.
Asia’s third-biggest equity bourse by market value is eager to increase its exposure to new, high-growth sectors to remain among the world’s top destinations to list shares.
Public consultation for the new board ended last month, with financial industry professionals still divided over the matter.
Li said there might be a need for another round of consultation to decide how the new board and weighted voting rights would be implemented.
Hong Kong’s government and regulators are increasingly concerned that a series of scandals, many centred on mainland Chinese companies listed in Hong Kong, has tarnished the territory’s reputation as a financial centre.
Hong Kong gained unwanted international attention from scandals at firms including Hanergy Thin Film Power Group Ltd 0566.HK and China Huishan Dairy Holdings Co Ltd (6863.HK), while a penny stocks crash earlier this year impacted the Growth Enterprise Market.
The bourse’s second trading board - which has less stringent listing criteria than the main board - has seen high levels of volatility due to very concentrated shareholdings and concerns have grown over the quality of companies listed there.
Addressing concerns about listing criteria being even less strict on the new board, Li said HKEX would not compromise public interest for its own profitability. He also downplayed the likelihood of the financial regulator being given more powers.
“The key is the market will understand that the bulk of the listing rule regulation is still going to be (policed) at the exchange, but the SFC will take a proactive role whenever they see fit,” he said, referring to the Securities & Futures Commission.
Discussions over a new board come as trading by overseas investors is growing after the start of the Hong Kong-Shenzhen and Hong Kong-Shanghai stock connects, which allow non-Chinese investors to buy mainland-listed shares via Hong Kong.
HKEX is now working on setting up a commodities trading link with China. Li said progress was at an early stage and that the link would be an extension of HKEX’s 2012 acquisition of the London Metal Exchange and bid to diversify into commodities.
“We would love to have a commodities connect. That would be a natural extension of the connect program, but ... we need to work with the domestic (Chinese) commodities exchange partners,” he said. “They need to feel that they can get something out of it.”
Reporting by Anne Marie Roantree; Additional reporting by Elzio Barreto, Sumeet Chatterjee, Twinnie Siu and Julie Zhu; Writing by James Pomfret; Editing by Christopher Cushing