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Chinese TMT companies increasingly opt for Hong Kong listings

China's technology, media and telecom companies are increasingly choosing to list on the Hong Kong Exchanges & Clearing Ltd. due to Hong Kong's newly adopted listing rules, optimistic valuations and low legal costs, experts say.

According to data compiled by S&P Global Market Intelligence, Chinese TMT companies listed in Hong Kong increased in 2018 to 15, outnumbering the number of Chinese TMT companies listed in the U.S. last year. In earlier years, the number of Chinese TMT listings in the U.S. were higher: In 2010, five Chinese TMT companies chose to list on the Hong Kong exchange, while 15 listed on U.S. exchanges.

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The recent rise in the number of IPOs launched on the HKEX is attributed to its more "welcoming" environment as a listing venue, particularly HKEX’s new policies enforced last year, Wilson Chow, Mainland China and Hong Kong TMT Leader at PwC Global said in an interview.

HKEX proposed listing rule changes in April 2018, allowing the IPO of companies with weighted voting right, or WVR structures, and making way for secondary listings for Greater China and international companies in Hong Kong.

WVRs attract TMT companies, according to Michael Tjenalooi, assurance leader of Ernst & Young LLP's technology, media and telecommunications sector. Chinese companies in the sector rely heavily on capital investments to operate their businesses and to allow founders' ideas or intellectual properties to flourish, he said.

The Chinese conglomerate Alibaba Group Holding Ltd. decided to float in the U.S. in 2014 mainly due to the missing WVR feature in Hong Kong, Chow added.

Xiaomi Corp. and online service platform Meituan Dianping became part of the first batch of companies to IPO in Hong Kong after the listing rule changes were made last year.

Companies also tend to choose a venue that provides a larger valuation, Tjenalooi said. Xiaomi's valuation was initially US$100 billion before it was revised down shortly after it decided to delay its mainland offering of Chinese depositary receipts until after its Hong Kong listing.

"Many tech companies find their valuation no different than if they [had] picked the U.S. [as a] listing venue," Chow said.

In addition, companies also face lower legal costs when they list in Hong Kong, said David Li, senior partner at Shanghai-based AllBright Law Offices. The U.S. exchanges allow shareholders to file class actions against listed companies, and the legal cost for companies seeking to defend themselves in the U.S. remains high, according to Li. Further, more China-based TMT companies are likely to list in Hong Kong due to its more familiar legal environment, added Tjenalooi.

The Hong Kong market has already shown a strong appetite to absorb large TMT offerings, such as China Tower Corp. Ltd.'s US$6.92 billion IPO and Xiaomi's US$4.72 billion IPO.

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Experts are optimistic about Hong Kong's future as a listing venue for Chinese TMT companies.

The first few trials of welcoming technology companies to the market will help regulators grow familiar with the sector and are likely to lure more Chinese TMT IPOs to the exchange through the release of favorable policies, Chow concluded.