(Bloomberg) -- Hong Kong is likely to see more dual-traded companies shift toward primary listings in the financial hub as they seek inclusion in trading links with mainland China, according to the city’s exchange chief.
In a wide-ranging interview that also covered topics including Hong Kong’s quarantine policy and China’s support for the city’s global role, Hong Kong Exchanges and Clearing Ltd. Chief Executive Officer Nicolas Aguzin said more companies with secondary shares in Hong Kong are considering primary listings while others may be forced to do so by market rules as more of their trading volume migrates to the city. The most prominent dual-listed company currently excluded from the Stock Connect with China is e-commerce giant Alibaba Group Holding Ltd.
“What we’ve seen for example in Alibaba and in a few others, is that over time, a lot of the trading is coming to our part of the world,” Aguzin said. “When it’s over 55% trading in our market, at that point they don’t have an option. But they can decide to do it anytime.”
Aguzin didn’t indicate whether Alibaba has held talks with HKEX about a potential primary listing. Alibaba didn’t immediately respond to a request seeking comment.
The prospect of Stock Connect inclusion for companies like Alibaba has been subject of intense speculation among traders in Hong Kong, which currently excludes companies with both secondary listings and weighted voting rights from its mainland trading links.
While some market participants had hoped the exchange would relax the rules that bar such companies, a primary listing is emerging as an alternative path. Bilibili Inc. last week won shareholder approval to convert its secondary Hong Kong listing status to dual-primary while Zai Lab Ltd. completed the procedure in June.
Unlike companies with a primary listing in Hong Kong, firms with a secondary listing in the city are exempted from certain listing rules and don’t have to disclose things such as financial guarantees provided to affiliates and stock pledges made by the controlling shareholder.
Under current rules, a company will be required to convert its listing status to primary if 55% or more of the trading volume takes place on the Hong Kong bourse over the past fiscal year. Still, most secondary-listed firms, including Alibaba, are far from reaching that threshold, according to data compiled by Bloomberg.
“I am seeing quite a clear trend that homecoming issuers are gravitating towards a dual primary listing as opposed to a secondary,” said HKEX Head of Listing Bonnie Chan during the interview. Companies seeking to convert can also discuss with HKEX on continuing exemption for some time to help with smooth transition, she said.
Aguzin also expressed confidence that more connectivity with the mainland will boost trading volume and lift the exchange’s prospects. HKEX shares have lost 18% since he took over in May 2021.
Here are some of the other topics Aguzin discussed. His comments have been lightly edited and condensed.
Hong Kong’s role:
From the overall China point of view, having the possibility of having a place that can be international and competitive, it’s very important and a great advantage. That’s why my view is that, is this going to be another city of mainland? Why? Who benefit from that? The logical conclusion is that there is a lot of value in being the most international city of China, the most Chinese city outside of the mainland.
There’s not a change in terms of making sure that this is an international financial center. That’s very high on the agenda. I feel very encouraged by being able to operate this as an international exchange. I don’t feel any constraints from any side.
My expectation is as we start coming out of this situation, the amount of quarantine will probably be condensed. Hopefully very soon we will have no quarantine. I look forward to the day that we can travel back and forth. I used to travel for one day just to New York and come back. Now it’s unthinkable.
Learning from crypto:
Whenever you do a transaction, it takes 48 hours to settle, and it’s touched by on average 10 to 12 people. There are so many people getting a little cut of everything. You look at some of the crypto exchanges -- I don’t want to be a crypto exchange right now. But there are things to learn from everyone: the ease of use, how you can trade 24 hours a day, peer-to-peer without intermediary, automatic settlement at anytime, a really efficient way of operating.
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