The search for international companies looking to list and the boom in technology companies is making Asian stock exchanges more competitive, as they examine what differentiates them in the eyes of investors. Kimberley Long reports.

HKEX

Home to four of the world’s largest stock exchanges by market capitalisation, Asia-Pacific is a hotbed of competition for the most attractive companies. From lucrative tech start-ups, both homegrown and foreign, to megabrands looking to list for the first time, these exchanges know they have to offer something unique to attract the big listings.

Recognising that simply having the biggest investor pool may no longer be enough to attract listings, stock exchanges across the region have been adapting their criteria to suit the changing needs of these companies, and the additional investors they may bring.

On top down under

The Australian Securities Exchange (ASX) has made headlines most recently for its plans to move to distributed ledger technology (DLT) rather than its blockbuster listings. The ASX has been using the Clearing House Electronic Subregister System, which allows for the switch from shares in a physical format to an electronic one, for the past 25 years. Now it has taken the bold step of adopting DLT, with the goal of being fully operational by March 2021.

This openness to innovation is enticing companies to list on the exchange. “The ASX is seeing considerable interest from companies from New Zealand, Israel and the US in particular, as they are able to list here relatively quickly, at less cost and with more opportunity to appear in major indices sooner than they are able to in their home markets,” says Max Cunningham, ASX executive general manager, listings and issuer services. 

Another attractive feature of the ASX is the ability to list on an exchange with accessible entrance requirements, and with a more substantial investor base than is available in some companies’ home markets. So far 58 New Zealand companies and 17 Israeli companies have decided to list on the ASX.

“Companies are coming to Australia for different reasons,” says Mr Cunningham. “In the example of New Zealand and Israel it can be because they are coming from smaller economies with less opportunity to obtain financing. Their capital markets are not deep or liquid to develop a substantial pool of investable funds. They can instead come to Australia where they have the ability to raise capital and build up the company to be of considerable size.”

Simply put, the barriers to growth are far lower in Australia than in other Western economies. “Companies waiting to list in the US will generally need a minimum $1bn, and don’t get into major indices below $5bn, whereas they can get into the major Australian benchmark index with a valuation of about $700m,” says Mr Cunningham. “This can help them to attract additional investment. Some companies might then choose to list or dual list elsewhere, but many do not need to.”

Hong Kong's home comfort

While some companies are looking far from home to find their ideal listing, for others the domestic market is proving to be the most lucrative option.

The Hong Kong Stock Exchange (HKEX) is leveraging its relationship with China to serve as a gateway into this huge market. “Hong Kong has strong ties with mainland China, which makes the HKEX the first choice of mainland companies seeking to list in an international market and companies from outside the mainland seeking to highlight or build businesses on the mainland,” says a spokesperson for the HKEX. 

Of these ties the most pertinent is Stock Connect, an agreement between Shanghai, Shenzhen and Hong Kong’s exchanges. The agreement allows international and mainland investors to trade securities in the other markets through the facilities of their home exchanges. Such tie-ups have allowed Hong Kong to attract household names, with international listings on the HKEX including HSBC, L’Occitane, Prada, Samsonite and Standard Chartered.

However, the HKEX has hit a stumbling block: Shanghai has toughened its rules on Chinese investors accessing shares in foreign companies listed on the HKEX. For Western companies hoping to use the HKEX to gain access to the Chinese investor base, it could be a disincentive to list.

Advantage Singapore

For Singapore, this could be the opportunity to attract greater attention from companies across the region and beyond.

Chew Sutat, executive vice-president, head of equities and fixed income, at the Singapore Exchange (SGX), believes the exchange has a strong track record in overseas listings. “In Singapore, 40% of our companies are non-domestic. There is a huge resource of investing income that international companies want to tap into,” he says.

The SGX operates under UK law, which makes it transparent and accessible for global companies. This is a draw for overseas investors, because more than 90% of fixed-income investments come from non-Singaporean investors.

For some businesses it is about looking beyond the initial listing, and focusing on the support they will receive as their company matures. “The SGX has an AAA rating and has a strong secondary market,” says Mr Chew. “Companies that list here have the opportunity to seek secondary rounds of funding. When they need to raise capital for expansion or growth, it is available.”

The HKEX uses the same argument to stress its attractiveness as the place to list in its own right, irrespective of its link to mainland China, with the exchange’s largest initial public offering (IPO) in 2018 coming in at $7.5bn. “Hong Kong also has a sound regulatory regime, a well-established legal system and the talent and infrastructure that have helped Hong Kong become one of the world’s premier financial centres,” says the HKEX spokesperson. 

Singapore is also looking to expand its reach into the international marketplace through careful collaboration, both through the partners it is choosing and the sectors they support. “There has been a partnership with the Tel Aviv Stock Exchange [TASE] and Nasdaq in the US to boost the available capital for tech innovation,” says Mr Chew.

The SGX's agreement with TASE is intended to bring about mutual capital-raising opportunities, encouraging tech and healthcare companies to list on both exchanges and supporting them through the pre- and post-listing processes.

The work has been paying off. Figures from the World Federation of Exchanges indicate that the SGX's total international listings are significantly higher than some of its regional revivals. While the SGX sees 35% of its listings from non-domestic companies, for the HKEX it is 6.7%, and in Japan it is just 0.1%.

Japan's overseas focus

However, for Japan, the overseas market represents a potential growth frontier. Japan Exchange Group (JPX), created through the merger of the Tokyo Stock Exchange and the Osaka Securities Exchange in 2013, saw 91 companies list in 2018, thanks in part to an influx of start-ups and their attractiveness to venture capitalists.

“The Tokyo Stock Exchange has the largest market capitalisation of any exchange in Asia,” says Mitsuo Miwa, director of corporate communications and chief investor relations officer at the JPX. “Foreign investors and individual investors account for about 30% and 17% of all shareholders, respectively, and the exchange is proactively working to further expand this investor base. We see particular potential in the Asia region and are currently focusing many of our efforts there.”

In 2018, JPX saw its largest ever IPO, from telecoms company SoftBank with a valuation of Y2600bn ($23bn). Mr Miwa adds that JPX has seen increasing interest from overseas companies who are attracted by such large figures.

Hunting unicorns

As exchanges such as ASX look to adapt their operating model to align with the latest technological developments, there is a wider understanding that rules need to be updated to suit the demands of an ever more important business sector.

In 2018 both the SGX and HKEX allowed the use of dual-class share structures to attract more listings from tech companies, which often operate with split-share classes to protect the influence of the founders after the company has gone public.

“There is the proposition to support the new economy tech sector,” says Mr Chew. “Recent rule changes allow for dual-class listings, designed to attract start-ups as well as companies from a variety of industries, which view a dual-class structure as essential for their long-term strategy and development.”

Being flexible is important when it comes to keeping these lucrative companies close to home, as China found when Alibaba, Baidu and JD.com all chose to list in the US to take advantage of the dual-class option. The move meant the New York Stock Exchange hosted the record-breaking $25bn flotation of Alibaba in 2014.

The ASX has pitched itself as an attractive place for digital companies and start-ups. Mr Cunningham says the ASX has a history of backing companies at an early stage. “For fintech companies, the ASX offers the appeal of tapping into Australia’s large and growing pool of investable funds, which allows them to expand, including internationally, after listing on the market. We’ve seen that in the domestic market with payments platform Afterpay, which is now looking to expand globally,” he adds.

Small and nimble

Rather than competing on exchanges overflowing with big names, some are picking smaller Asian exchanges. The National Stock Exchange of Australia (NSX) operates in a similar capacity to London’s Alternative Investment Market, enabling smaller companies to float. The NSX focuses on growth companies, such as the technology and consumer space, and requires them to have just 50 shareholders to list, compared with 300 from the ASX. The NSX currently has a market capitalisation of more than $4.3bn and more than 80 companies listed.

The NSX also has a local market focus, but about 25% of its listings are from foreign entities, either with the majority of their operations overseas, or from a company that is domiciled offshore. “We operate a two-year track record test that looks at the suitability of companies for listing,” says Chan Arambewela, head of new products and markets. “NSX’s market model is designed to facilitate liquidity and capital formation in small to mid-caps, and our listing and trading rules are tailored to the small to mid-cap market including track record test, dual-class securities, trading windows, select markets and faster, cheaper and easier access to listing.”

Mr Arambewela emphasises that the exchange is suited to family-owned businesses looking to transition their management and ownership structure. The NSX identifies its target market as companies worth $10m to $50m at IPO. The typical company lists at $30m, and raises between $1m and $3m at IPO, precisely the kind of company well placed to benefit from Asian exchanges’ new era.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter