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Listing shares in more than one financial market is often seen as a major step in a company¡¯s development as it signals recognition by international investors, and an enhancement in liquidity and valuation. For PRC companies listed on domestic A-share markets, issuing H shares on the SEHK has become a more popular strategic expansion. Not only can A-share companies with H shares issued enjoy the above general benefits of listing in multiple markets, but the H-share listing status will also provide them with more flexibility in raising funds offshore and onshore, expanding overseas business and attracting international strategic investors. Stronger policy support and a more flexible regulatory environment are also conducive to the issuance of H shares by A-share companies. This article seeks to provide an overview of the unique perks that the Hong Kong capital market offers to A-share companies and the recent favourable policy and regulatory changes.

Unique advantages of HK capital market

Hong Kong provides a much speedier path to raising funds in the secondary market compared to the A-share market. In the A-share market, secondary fundraising requires regulatory approval which will usually involve a lengthier process. In contrast, the Hong Kong capital market allows listed companies to conduct secondary equity fundraising in a market-oriented manner, with relatively more simpler and efficient approval processes. Listed companies can virtually issue new equity for cash at any time, followed by a post-completion filing with the China Securities Regulatory Commission (CSRC).

It is easier to use funds raised from a H-share initial public offering (IPO) and the secondary market for gaining exposure to international business opportunities. Funds raised from the A-share market are in renminbi and must be kept in domestic accounts, and to use the proceeds for business operations outside the PRC, companies are subject to PRC regulatory requirements, including the outward direct investment procedures which takes time to process. On the contrary, although the funds raised from H-share IPOs and the secondary market should be repatriated to the PRC and converted into renminbi, where a company has funding needs for expanding its overseas business, it can consider applying for the funds raised to be directly invested in overseas projects. Since this does not usually utilise the foreign exchange reserve quota of the place where the listed company is based, the approval process is more straightforward, enabling the listed company to be better positioned to capture the right market at the right time.

Issuing H shares can help attract international strategic investors. Currently strategic investments in A-share companies by foreign investors are relatively low for a number of reasons, including the high threshold to be qualified as a foreign strategic investor under the Strategic Investment in A-share Companies by Foreign Investor Regulations (currently under revision). Issuing H shares on the SEHK can facilitate investment by international strategic investors as cornerstone/institutional investors in IPO and post-IPO equity fundraisings. For the company, this will improve its equity structure, enhance its reputation and benefit its long-term development.

With companies listing in both the A-share and H-share markets, they can diversify the systemic risk of a single market, and reduce the adverse impact on their overall market capitalisation and financing ability due to fluctuations. In addition, the different valuation systems and investor needs of the capital markets on the SEHK help companies secure more stable valuations and trading behaviour against the possible fluctuations of share prices in the domestic market due to the single market risk mentioned above because the Hong Kong capital market is in a better position to attract more professional and experienced investors.

Favourable policy and regulatory changes

The SEHK has been trying its best to attract high quality corporations and it has recently streamlined its listing processes to make it more efficient for A-share listed companies to go public in Hong Kong. It has accelerated the review for A-share listed companies with (a) an expected market capitalisation of at least HKD10 billion; and (b) clean compliance records with laws and regulations applicable to its A-share listing for the two full financial years immediately preceding the new listing application and up to the date of submitting the new listing application. Under the new procedures, such eligible A-share companies with a listing application fully meeting relevant requirements will receive only one round of regulatory comments to be issued, and the regulator will take no more than 30 business days to complete the assessment (instead of two rounds of regulatory comments to be completed within 40 business days).

The SEHK has been continuously refining its regulatory regime to make Hong Kong a more attractive place for companies to list their shares. The new FINI platform has significantly reduced the IPO settlement timeframe. With FINI, the SEHK has proposed providing more flexibility in price determination and the settlement process in the future by allowing an upward price adjustment. This will enable the process to take rapidly changing market sentiment into account and make a H-share listing more attractive. Moreover, the SEHK has proposed lowering the minimum proportion of H shares from 15% to 10%, or a minimum market value of HKD3 billion. This change will likely make it easier for A-share companies to complete their H-share IPOs.

More importantly, the SEHK and the CSRC have a common goal to leverage the SEHK platform to help PRC companies overcome the inherent limitations of a domestic capital market and benefit from the most popular international capital market platform in Asia and one of the top platforms in the world. Both the SEHK and the CSRC are striving to create more opportunities and support PRC businesses from across all industries. Such policies are also closely in line with the strong and apparent signal from the government to boost the economies of the Greater China region over the long run.

In conclusion, listing in Hong Kong enables mainland companies to leverage the unique advantages of the city¡¯s capital market to achieve their strategic goals and enhance their global competitiveness. Recently, following the recovery of the Hong Kong market, a trend of H-share IPOs on the SEHK by mainland-listed companies has been observed. Moving forward, it is expected that this trend would amplify. In light of the strong determination and close co-operation between the relevant regulators of the PRC and Hong Kong, the time for A-share companies to issue H shares in Hong Kong has come.

Stella Yeung is a partner at Jingtian & Gongcheng. She can be contacted by phone at + 852 2926 9438 and by mail at stella.yeung@jingtian.com

Stephen Luo is a partner at Jingtian & Gongcheng. He can be contacted by phone at + 852 2926 9448 and by mail at stephen.luo@jingtian.com