New STAR Market could lure domestic tech firms from Hong Kong IPO: report

By Eliza Gritsi
2 min read
A concierge collating documents at the Shanghai Stock Exchange located at the Lujiazui Financial District in Pudong, China on April 4, 2019. (Image Credit: TechNode/Eugene Tang)
A concierge at the Shanghai Stock Exchange located at the Lujiazui Financial District in Pudong, China on April 4, 2019. (Image credit: TechNode/Eugene Tang)

Chinese companies have preferred to list in Hong Kong this year, but the freshly opened Science and Technology Innovation Board in Shanghai could be a “real shake up” in Chinese initial public offerings (IPO), a report by US law firm Baker McKenzie said.

The firm expects that the new tech board at the Shanghai Stock Exchange, named the STAR Market, will challenge the Hong Kong Stock Exchange. The tech board started accepting applications in March, and approved its first three listings earlier in June from the biotech, semiconductor, and artificial intelligence (AI) industries.

The new exchange is an attempt to keep China’s valuable homegrown tech firms from listing abroad.

The STAR Market relaxed listing requirements compared with other exchanges in China, allowing for pre-profit and even loss-making companies to list.

Last year, Hong Kong made a move along the same lines, changing its rules in order to allow pre-revenue biotech firms and some which operate on weighted voting systems to trade. This has been received “positively,” but Shanghai’s new tech board could still prove a more alluring, Baker McKenzie said.

In the first half of 2019, eight of the 12 high-tech IPOs were from Chinese companies, but half of them chose to list in Hong Kong, three on Nasdaq and one on the New York Stock Exchange (NYSE), the firm said. Live-streaming platform Douyu, backed by Tencent, was largest cross-border public offering. It raised $500 million with its NYSE IPO in April, according to the report.

However, as the two Asian cities are sparring with Shanghai, the US maintains the lead when it comes to high-tech IPOs, according to Baker McKenzie’s analysis. In the first quarter of 2019, American stock exchanges raised $14.45 billion from high-tech listings, an 185% year-on-year increase, the report said. China saw an 80% decrease in capital raised from tech IPOs, from around $9.7 billion to around $1.7 billion. Hong Kong didn’t even make the top five list, the report said.

Top countries for high-tech IPOs, first half of 2018 vs. first half of 2019. (Image credit: Baker McKenzie, TechNode)

Similarly, in the first half of 2019, Chinese stock exchanges lagged their American counterparts, according to the report. The NYSE and Nasdaq raised approximately $15.38 billion for high-tech firms, almost six times more than Shenzhen’s Stock Exchange, third on the list and the only Chinese board to make the top five.

Top stock exchanges for high-tech IPOs by capital raised, first half of 2019. (Image credit: Baker McKenzie, TechNode)