Hong Kong Displays Its Financial Charms In Pitch To Bay Area

- Jun 07, 2018-

Hong Kong, China's Pearl in the East, once again has extended an invitation to American business and capital institutions, hoping its fiscal strengths can converge with US technology and innovation.

James Lau, secretary for financial services and the treasury of the Hong Kong Special Administrative Region government, last week visited the Bay Area to elaborate on the island's status as the world's third-leading international financial center (after New York and London) and its unique role played in China's Belt and Road Initiative for foreign companies and individuals.

Hong Kong remains robust in terms of raising funds through initial public offerings as a financial hub in Asia.

"Our crown jewel is our equity market, with market capitalization of more than $4 trillion," Lau said at a business luncheon in San Francisco on May 30.

One of the traditional strengths of Hong Kong is its fund management business — around $2.4 trillion in assets under management. Seventy out of the world's top 100 money managers choose Hong Kong as their base, Lau said, adding that Hong Kong is by far the largest offshore renminbi center in the world with a wide range of RMB-denominated financial products.

Stanley Kwong, professor of international marketing at the University of San Francisco, said Hong Kong tries to maintain its dynamics and vigor by continuously reforming itself and investing heavily in technology and innovation.

Its financial market has embraced innovation to become a regional hub for green finance and ultimately to play a vital role in enhancing connectivity, especially along the Belt and Road countries and regions.

The Hong Kong Stock Exchange has just put in place a new listing regime for companies from emerging and innovative sectors, which went into effect on April 30.

One major change to the listing requirements, said Lau, is tailor-made for biotech companies and takes into account their long and costly journey of turning research into effective products and applications.

"This will help biotech companies overcome their revenue and cash-flow challenges," he said.

Meanwhile, the Hong Kong Stock Exchange is to permit high growth and innovative companies with weighted voting rights (WVR) structures to list on the main board.

At the time of listing, companies with WVR structures would be required to have a minimum expected market capitalization of $1.3 billion, with their core business centered on new technologies, innovations or a business model that differentiates the company from existing players.

Those changes have yielded positive results for the market.

"We are seeing both biotech and WVR issuers filing IPO applications, and we expect more companies from emerging and innovative sectors to list in Hong Kong," said Lau, adding that the moves will deepen and broaden the region's fundraising platform and increase its overall competitiveness.

Sustainable development and green finance are other areas in which Hong Kong excels. The Hong Kong Quality Assurance Agency (HKQAA) launched its Green Finance Certification Scheme in January, providing third-party conformity assessments for issuers on their green debt instruments.

The government will develop a Green Bond Grant Scheme to subsidize eligible green bond issuers using the certification scheme. The subsidy per issue is up to $102,000 to cover certification expenses and the issuance would need to carry a minimum size of around $64 million.

A three-year Pilot Bond Grant Scheme that covers eligible enterprises issuing bonds in Hong Kong for the first time was also introduced. Eligible debt securities must be issued in Hong Kong, with an issuance size of at least $191 million.

Multilateral development banks are using Hong Kong as a platform for green bonds. For example, the Asian Development Bank has issued green bonds of $12.7 million and $50.9 million consecutively in Hong Kong in March.

On the Belt and Road Initiative, Hong Kong can be a hub that connects regional and international stakeholders in infrastructure investments.

"Our central bank and banking regulator, the Hong Kong Monetary Authority, has set up an Infrastructure Financing Facilitation Office, which provides a platform for collaboration," said Lau.

To date, around 80 key stakeholders, including multilateral banks, financiers, pension funds, insurance companies, commercial banks, infrastructure developers and operators, as well as professional services firms "have joined us as partners", he added.

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