The U.S. tech IPO window may have reopened in 2017 following a lull last year, but the outlook is also looking rosier for another listing platform located on the other side of world.
The Hong Kong Stock Exchange (HKSE) is experiencing a renaissance of sorts among the tech industry. Selfie app company Meitu held the largest listing from a tech company for nearly a decade in December — raising more than $500 million with its floating — while in recent weeks PC gaming brand Razer and Tencent-controlled e-books service China Publishing have both announced their intention to list in the city-state.
Hong Kong was widely thought to have blown its chance to put itself on the global map when Alibaba opted for a New York listing in 2014 because the HKSE was unable to accommodate its company structure. But, nearly three years on, the tide appears to be turning for some.
Speaking on stage at our TechCrunch China event in Shenzhen last month, a senior executive for logistics on-demand company Lalamove said his firm is eying a public listing in Hong Kong before 2020. Blake Larson, head of international for the company — which raised a $30 million Series B in January — said a dual-listing in the U.S. is possible, but the HKSE is the priority to “show it is possible to build a global technology company from Hong Kong.”
There’s plenty of interest beyond local companies, too, it seems. At the Rise event in Hong Kong this month, TechCrunch spoke to two founders who anonymously revealed that their Asia-based companies, each of which has raised more than $100 million in investment and does business worldwide, are devoting significant time towards a potential HKSE IPO in the future.
Ant Financial, the Alibaba affiliated fintech firm, has also been linked with a Hong Kong IPO. The firm raised over $3 billion at a valuation of up to $60 billion at the beginning of the year — that cash injection is reported to have pushed its much-anticipated IPO plan back to at least 2018 at the earliest.
Hong Kong may have landed a collection of reputable companies in Meitu, Razer and China Publishing, but it still has some way to go before it becomes a viable option for all.
For one thing, this trio all have notable businesses and brands in China, which is really a requisite factor. But there are further complications. Regulations make it difficult for companies that are still scaling their business to go public in Hong Kong since the exchange has stringent financial requirements.
“I definitely think the HKSE can be a destination for tech IPOs, but the Hong Kong government, administration and its investors all need to change their rules and ways to analyze growth potential of unprofitable internet companies,” Hans Tung, a partner with U.S.-China VC firm GGV, told TechCrunch.
Those thoughts were echoed by Kee Lock Chua, group president and CEO of Vertex Holdings, a firm affiliated with Singaporean sovereign fund Temasek.
“The Hong Kong Exchange is a viable listing venue for technology companies because of its liquidity and valuation,”Chua said in an email. “[But] the Hong Kong market generally still prefers profitable companies.”
“Technology companies that are growing rapidly but not profitable in the short term may find the U.S. market to be more suitable,” he added.
Another issue is that share structure factor. Hong Kong somewhat famously does not allow dual classes of common equity in its companies. That was the main facto that saw Alibaba head West for its IPO, which was a record U.S. listing and a major loss for Hong Kong.
“Alibaba should have been able to IPO in Hong Kong, the HKSE should have allowed Alibaba’s partnership structure to exist. Google and many tech companies have super voting structures on the Nasdaq. An Alibaba IPO in Hong Kong would have been a game changer,” Tung explained.
That said, there are young companies that have made it despite the requirements.
“Our portfolio company IGG [a mobile games developer] was listed on the GEM board [for growth companies] initially and was subsequently promoted to the Hong Kong main board. Today, it is trading at $2.5 billion in market cap,” Vertex’s Chua said.
The political uncertainty in the U.S. right now coupled with the development of unicorn startups across Asia gives Hong Kong a viable shot at becoming a credible IPO option. But the U.S. still retains cachet for tech companies in Asia and that’s reflect in those that are most likely to list next.
Tech firms like Singapore-based games firm Sea (formerly known as Garena), Vietnam’s gaming and messaging company VNG, and e-commerce company Reboonz (backed by both Vertex and GGV) are all reported to be exploring opportunities having grown beyond the venture capital ecosystem. However, in each case, media reports are linking them to U.S.-based IPOs.
Yet, there are no happy stories of Asian companies — excluding those from China — listing in America in recent times.
MOL Global is probably the most notable case. The Malaysian payment firm traded on the Nasdaq for a fairly turbulent 18-month period. Things got off to a bad start when the share price dipped 30 percent on its debut in October 2014, and, following a series of crises, the firm announced its delisting in April 2016. Ironically, MOL is involved in Razer’s IPO following an investment deal.
Sea is likely to be the first of the new Asian contenders to test the waters in the U.S. — Japanese chat app Line opted for a dual Tokyo-U.S. listing to mitigate risk last year — and how it performs, if and when it goes public, could be a deciding factor for others considering a similar route. In the meantime, it’ll be fascinating to see if the HKSE’s two incoming listings can convince more Asian founders to look away from the U.S. when it comes to going public.