Transcript Bringing Sustainable Success to the Hong Kong Primary Market China IPOs Conference 2005 Paul Chow Chief Executive, HKEx 28 September 2005

Bringing Sustainable Success to the
Hong Kong Primary Market
China IPOs Conference 2005
Paul Chow
Chief Executive, HKEx
28 September 2005
Agenda

Highlight of Hong Kong Securities Market

Mainland China Dimension

HKEx’s Major Initiatives in Primary Market

Conclusion
2
HKEx ranks 9th among global exchanges by market capitalisation
14000
Jul 2005 market capitalisation, US$bn
13,332
12000
US$ 939 bn as of Jul 2005
10000
US$ 956 bn (HK$ 7.5 tr) as of
20 Sep 2005
8000
6000
3,467
1,162
971
939
846
754
754
740
554
459
457
278
255
109
Shenzhen
1,315
Singapore
2000
Shanghai
2,527
Mumbai
2,920
Taiwan
3,599
4000
Korea Exchange
OMX Exchanges
Italy
Australia
Swiss Exchange
HKEx
Spanish
Exchanges
Deutsche Boerse
Toronto
Euronext
London
Tokyo
Nasdaq
NYSE
0
3
HKEx ranks 16th among global exchanges by equity turnover
YTM Jul 2005 turnover, US$bn
9000
8000
7,935
US$ 261 bn as of YTM Jul 2005
7000
5,895
6000
US$ 309 bn (HK$ 2.4 tr) as of
20 Sep 2005
5000
4000
3,226
3000
536
469
377
341
322
261
164
122
79
65
Singapore
581
Shenzhen
583
Shanghai
772
India
973
HKEx
1,062
1000
Taiwan
1,690
Amex
1,942
2000
Australia
Toronto
OMX
Exchanges
Korea
Exchange
Swiss
Exchange
Italy
Spanish
Exchanges
Deutsche
Boerse
Euronext
Tokyo
London
Nasdaq
NYSE
0
4
HKEx ranks 4th among global exchanges by equity fund raised
YTM Jul 2005 equity fund raised, US$bn
US$ 17.3 bn as of YTM Jul 2005
70
64.1
US$ 19.6 bn (HK$ 153 bn) as of
YTM Aug 2005
60
50
40
30
26.0
25.0
20
17.3
15.1
13.0
9.8
10
9.4
7.3
6.8
6.0
5.2
4.9
4.3
4.2
3.6
3.5
3.4
2.7
0.4
Shenzhen
Singapore
Athens
JSE
Shanghai
Nasdaq
Osaka
Borsa Italiana
NSE of India
BSE
Spanish
Exchanges
San Paulo
Wiener Börse
Australia SE
Tokyo
Euronext
HKEx
Tokyo
London
NYSE
0
5
HKEx key market statistics
Unit
YTM Aug 2005
2004
Total turnover
HK$bn
2,978
3,974
Average daily turnover
HK$bn
18.2
16.0
Total # of derivatives contracts
Number
16,116,157
19,629,692
Average daily # of derivatives contracts
Number
98,269
80,533
# of listed companies - equity
Number
1,108
1,096
# of new listings – equity
Number
30
70
Fund raised by IPOs
HK$bn
68.7
97.2
Fund raised in secondary market
HK$bn
84.1
184.6
Total fund raised
HK$bn
153.0
281.8
6
Agenda

Highlight of Hong Kong Securities Market

Mainland China Dimension

HKEx’s Initiatives in Primary Market

Conclusion
7
Since the 1980s, Hong Kong has played a key role in bridging between
Mainland China and the world
1960-80
1980
1993
 Mostly
British
hongs,
utility
companies
& property
companies
 Many HK
 H-shares
listed
market
companies
developed
had
 Some Hmanufacture
share &
operations in
Red-Chip
Pearl River
companies
Delta
dual listed
 HK- or
on HK &
foreignoverseas
incorporated
markets
Mainland
enterprises
listed in HK
as Red Chips
1994
2003
2004
 Stock
 H-shares  H-shares
options,
Index
Index
futures &
Futures
Options
warrants
launched
launched
for
 iShares
individual
FTSE/Xin
Mainland
hua A50
enterprises
China
developed
Tracker
launched
2005
 Promote
listing of
foreigncontrolled
companies
with Mainland
operations
Since 1993, over HK$1 trillion (as of 20 Sept 2005) of
equity funds were raised by Mainland China
enterprises, representing 50% of market total
8
Of the 15 largest companies in 2005, 5 of them are Mainland enterprises
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.




1962
1973
1983
1993
Aug 2005
Hongkong Bank
Hongkong Bank
Hongkong Bank
HSBC
HSBC
Whampoa Dock
HK Land
Hang Seng Bank
HK Telecom
China Mobile
HK Land
Jardine Matheson
China Light
SHK Properties
Hutchison Whampoa
China Light
Hutchison Intern’l
Hutchison
Hang Seng Bank
CNOOC
KM Bus (1933)
E.A. Navigation
HK Electric
Hutchison
Standard Chartered
HK Electric
New World Dev.
HK Land
China Light
Hang Seng Bank
HK Telephone
Wharf
Wharf & Godown
Cheung Kong
Cheung Kong
Yaumati Ferry
China Light
Swire Pacific
Swire Pacific
SHK Properties
HK Tram
Wheelock Marden
Jardine Matheson
Henderson Land
Bank of China
Wheelock
Taikoo Swire
General Oriental
Wharf
Swire Pacific
Jardine
HK Telephone
HK Telephone
HK Land
PetroChina
Swire
HK Electric
Swire Properties
HK Electric
CLP Holdings
Lane Crawford
Hang Seng Bank
Cheung Kong
New World Dev.
HK & China Gas
SHK Properties
Jardine Matheson
China Netcom
CITIC
MTR
Kwong Sang Hong Whampoa Dock
GI Cement
HK & Shanghai Hotels New World Dev.
Largest companies since 1962 in term of market cap.
Other largest companies in 1973/1983/1993 in term of market cap.
New largest companies in Aug 2005 in term of market cap.
Mainland enterprises
9
Definitions of Mainland enterprises
No. of Listed Issuers
Main
Board
GEM
Total
YTM Aug 2005
Definition
H shares
Enterprises incorporated in the Mainland which
are either controlled by Mainland Government
entities or individuals
76
38
114
Red chips
Enterprises incorporated outside of Mainland
and controlled by Mainland Government
entities
85
3
88
Non-H shares Mainland
Private Enterprises
Enterprises incorporated outside of Mainland
and controlled by Mainland individuals
84
30
114
245
71
316
204
47
251
449
118
567
Sub-total
Mainland operating
enterprises
TOTAL
Other enterprises listed in Hong Kong that
have substantial operations in the Mainland
10
Mainland China enterprises contribute significantly to the Hong Kong
securities market
YTM Aug 2005
Unit
Total
Mainland
enterprises
# of listed issuers
Number
1,108
316
29%
# of new listings – equity
Number
30
15
50%
Market capitalisation
HK$bn
7,360
2,420
33%
Average daily turnover - equity
HK$bn
14.8
6.6
45%
Funds raised by IPOs
HK$bn
68.7
61.7
90%
Fund raised in secondary market
HK$bn
84.1
12.0
14%
Total fund raised
HK$bn
153.0
73.9
48%
% of total
11
Top 10 IPOs since 1986 are all by Mainland enterprises
Rank
Company
1
China Unicom
22 Jun 2000
Red Chip
43,608
2
China Mobile
23 Oct 1997
Red Chip
32,665
3
China Life
18 Dec 2003
H shares
26,714
4
China Petro. & Chemical
19 Oct 2000
H shares
26,681
5
China Shenhua
15 Jun 2005
H shares
22,976
6
PetroChina
7 Apr 2000
H shares
22,330
7
BOC Hong Kong
25 Jul 2002
Red Chip
20,516
8
Bank of Communications
23 Jun 2005
H shares
16,835
9
Ping An Insurance
24 Jun 2004
Red Chip
14,337
10
SMIC
18 Mar 2004
Pvt. enterprise
13,858
Listing date Type
Fund raised (HK$mn)
12
7 of the top 10 IPOs in 2005 are by Mainland enterprises
Rank
Company
1
China Shenhua Energy
15 Jun 2005
H shares
22,976
2
Bank of Communications
23 Jun 2005
H shares
16,835
3
China COSCO
30 Jun 2005
H shares
9,537
4
Shanghai Electric Group
28 Apr 2005
H shares
5,054
5
Foxconn
3 Feb 2005
Hong Kong
3,711
6
Guangzhou R&F Properties
14 Jul 2005
H shares
2,284
7
AAC Acoustic Tech.
9 Aug 2005
Pvt. enterprise
980
8
Xinyi Glass
3 Feb 2005
Hong Kong
836
9
Dynasty Fine Wines
Red Chip
776
10
I.T.
Hong Kong
667
Listing date Type
26 Jan 2005
4 Mar 2005
Fund raised (HK$mn)
13
% of market capitalisation and equity turnover contributed by Mainland
enterprises increase significantly over time
 % of market capitalisation
 % of equity turnover
 no. of Mainland enterprises
50.0%
45.0%
49%
45%
316
300
42%
40.0%
350
46%
300
38%
242
35.0%
33%
30%
29%
30.0%
28%
26%
27%
33%
30%
198
27%
27%
250
200
25.0%
152
21%
150
20.0%
127
16%
15.0%
9%
10.0%
9%
50
38
90
12%
12%
5%
111
53
101
14%
100
64
9%
50
5%
5%
Aug
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0.0%
1993
5.0%
0
14
Mainland enterprises listed in Hong Kong cover a diversified range of
industries
Industry
No.
%
Technology (telecommunications, IT and electrical & electronic components)
72
23
Real estate
24
8
Raw materials and chemicals
23
7
Energy and power
23
7
Conglomerate
22
7
Pharmaceutical
18
6
Transportation
15
5
Financial services (banks, insurance companies and investment companies)
14
4
Food
11
3
Automobile
10
3
Miscellaneous
84
27
316
100
Total
As of Aug 2005
15
Mainland enterprises listed in Hong Kong cover many different regions
Region
Pan Pearl River Delta (Guangdong, Fujian, Guizhou,
Hainan, Hunan, Jiangxi, Sichuan and Yunnan)
Bohai Gulf (Beijing, Hebei, Shandong and Tianjin)
Yangtze River Delta (Jiangsu, Shanghai and
Zhejiang)
Nationwide SOE (with businesses all over the
Mainland e.g. China Mobile, PetroChina)
No.
%
83
26
56
18
50
16
42
13
Hong Kong (Mainland companies with major
businesses conducted in HK e.g. BOC Hong Kong,
Shenyin Wanguo)
Multi-regions (with businesses in more than one
province e.g. GOME Electrical, China Gas)
Northeast (Heilongjiang, Jilin and Liaoning)
29
9
24
8
14
4
18
6
316
100
Others (Anhui, Chongqing, Gansu & Qinghai, Henan,
Hubei, Inner Mongolia, Ningxia, Shaanxi, Shanxi, Tibet
and Xinjiang)
Total
 22 provinces
 5 autonomous
region (Guangxi,
Inner Mongolia,
Ningxia, Tibet and
Xinjiang)
 4 municipalities
directly under the
Central
Government
(Beijing,
Chongqing,
Shanghai and
Tianjin)
As of Aug 2005
16
Agenda

Highlight of Hong Kong Securities Market

Mainland China Dimension

HKEx’s Initiatives in Primary Market

Conclusion
17
HKEx’s initiatives related to primary markets are parts and parcels
to
the success of Hong Kong as a premier capital formation centre for Mainland
enterprises
Challenges to HKEx in
relation to Mainland
China enterprises
Principles
HKEx’s initiatives
IPO activities
• Continuous supply of
IPO applications
• Increasing complexity
of IPO transactions
• Enhance listing decision
making efficiency
• Enhance operational
efficiency
• Review of new structure
of listing decision-making
• Enhancement of internal
operations & processes
of Listing Division
Fund raising
platform
• Diversified fund
raising needs for
different Mainland
enterprises
• Offer robust and flexible
fund raising platforms to
meet market needs
• Promote HK as a premier
capital formation centre
for Mainland enterprises
• Review of GEM
• Mainland liaison and
promotional activities
Solutions
18
HKEx’s initiatives related to primary markets are parts and parcels
to the success of Hong Kong as a premier capital formation centre for
Mainland enterprises (cont’d)
Challenges to HKEx in
relation to Mainland
China enterprises
Market quality
assurance
• Limitations on crossborder enforcement of
non-Hong-Kongbased Mainland
issuers
• Concentrated
ownership on state
and individual levels
Solutions
Principles
HKEx’s initiatives
• Enhance cross-border
enforcement
• Continue to uphold and
enhance disclosure based
regulatory regime based
on international standards
• Closer cooperation with
SFC, CSRC, 2 Mainland
exchanges and other
enforcement authorities
• Statutory backing of
certain provisions of the
Listing Rules
• Continual promotion and
education of corporate
governance
• Enhancement of
dissemination of listed
issuers’ disclosures
19
Continuous supply of IPO applications in the pipeline
Main
Board
GEM
Total
YTM Aug 2005
66
14
80
2004
96
34
130
YTM Aug 2005
44
7
51
2004
59
23
82
No. of newly listed companies YTM Aug 2005
27
3
30
No. of newly listed companies in 2004
49
21
70
New applications accepted
Approvals in principle granted by the Listing Committee
20
HKEx’s initiatives in primary market: IPO activities
Current progress
• Published consultation paper in
Feb 2005 on:
- Composition and operation of Listing
Committees
Review of new
structure of
listing decision
making
- Proposals for a more efficient
framework for decision-making in
matters such as listing applications
and suspected breaches of Listing
Rules
Next Steps
• Finalise conclusions and
Listing Rule amendments
with the SFC, HKEx Listing
Committee and HKEx Board
• Issue consultation
conclusions by end of 2005
- Appointment of an adjudicator as
first instance disciplinary decisionmaker and aspects of the
adjudicator’s procedures
• Received 18 submissions
including 7 from industry
associations
• Responses are published on
HKEx website in May 2005
21
HKEx’s initiatives in primary market: IPO activities
Current progress
• Set up an enhanced case
database to capture corporate
information of listed issuers and
directors
Enhancement
• Organised professional training
of internal
programmes for Listing Division
operations of
(e.g. HKAS/IFRS)
Listing Division
Next Steps
• Review operational
procedures in key listing
areas to further improve
process automation and
response efficiency
• Further strengthen senior
management team of Listing
Division
- Mainland China liaison
- Legal and accounting
- Enforcement
22
HKEx’s initiatives in primary market: Fund raising platform
Current progress
• Established an internal working
group to develop proposals for
the comprehensive review of
GEM
• Completed internal research on
Review of GEM
historical performance of GEM
• Prepared comparisons of
overseas second board designs
Next Steps
• Seek informal views from
members of HKEx Listing
Committees, members of HKEx
Board, professional bodies and
market participants
• Issue public consultation via a
formal consultation paper by end
of 2005 or early 2006 to:
- Outline possible strategies to
strengthen liquidity and corporate
governance of GEM
- Outline options to improve the
robustness of the GEM platform to
meet issuers’ capital-raising needs
23
HKEx’s initiatives in primary market: Fund raising platform
Current progress
• Regular communications with
Mainland authorities to
exchange views on regulations
and market developments
Mainland
liaison and
promotional
activities
• Organised and participated in
over 100 conferences with over
6,600 participants including
Mainland enterprises and
intermediaries
Next Steps
• Continue to leverage HKEx
BJO and special branch
representatives in Shanghai &
Guangzhou to undertake
Mainland liaison activities
• Continue to organise major
conferences to promote Hong
Kong securities market:
- Conference in Fuzhou in Sep 05
- Conference in Wuhan in Dec 05
24
HKEx’s initiatives in primary market: Market quality assurance
Current progress
• SFC issued proposed Securities
Statutory
backing of
certain
provisions of
the Listing
Rules
and Futures (Stock Market
Listing) Rules and guidelines
(SMLR) in Jan 2005
• FSTB issued Consultation Paper
on Proposed Amendments to the
SFO in Jan 2005
• HKEx submitted combined
response to SFC and FSTB in
Mar 2005
Next Steps
• Prepare a comparison of
regulatory regimes in UK, US,
Australia and under IOSCO
principles on financial reporting,
connected transaction and price
sensitive information
• Continue discussions with FSTB
and the SFC on the draft SMLR,
and solicit inputs from market
practitioners
• Propose to enshrine the following
provisions in statute:
- Regular financial reporting
obligations
- Disclosure obligations of corporate
transactions that require prior
independent shareholder approval
(e.g. connected transactions)
- Obligation to disclose price-sensitive
information
25
HKEx’s initiatives in primary market: Market quality assurance
Current progress
• Implemented revised Code on
CG Practices and CG Report in
Jan 2005
Continual
promotion and
education of
corporate
governance
• Implemented revised listing rules
on CG in Mar 2004
• Implemented revised Code
Provision on internal controls
and the relevant disclosure
requirements in the CG Report
in Jul 2005
Next Steps
• Allow time for listed issuers to
adapt to new CG provisions
• Analyse responses from
issuers on questionnaire sent
out in Jul 2005 regarding
market readiness to comply
with the recent changes
• Continue to promote a
compliance culture through
issuer and investor education
• Conducted training programmes
for 124 finance, accounting
executives and board
secretaries of H-share
companies
26
HKEx’s initiatives in primary market: Market quality assurance
Current progress
• Proposals on total abolition of
Enhancement
of
dissemination
of listed
issuers’
disclosures
paid advertisements and
mandatory use of eSubmission
system (currently account for
24% of submissions) endorsed
by HKEx Listing Committee in
Jul 2005
• Implemented a Disaster
Recovery Site for HKEx website
in Sep 2005 to enhance its
resilience as a central
dissemination platform for issuer
disclosures in the future
Next Steps
• Establish an enhanced
dissemination infrastructure of
listed issuer information
• Enhance security features and
user-friendliness of the
eSubmission system
• Publish Exposure Paper by
end of 2005 to seek public
views on:
- Transitional arrangements (e.g.
summary announcement vs.
notifications)
- Proposed rule changes
- Requirement of listed issuers to
establish their own websites
and/or use of third party websites
27
Agenda

Highlight of Hong Kong Securities Market

Mainland China Dimension

HKEx’s Initiatives in Primary Market

Conclusion
28
Hong Kong competitive advantages
•
China’s growth & development presents tremendous business opportunities
•
Hong Kong is in a unique & favourable position to capture these opportunities
•
-
No foreign exchange controls & withholding tax
-
No capital gain tax, and no controls on foreign investment and investors
-
Freely convertible currency
-
Proximity to Mainland China
-
Active retail & institutional participation
-
A free, transparent and fair securities marketplace
-
Rule of Law
-
International accounting standards and management best practices
-
Abundant of professional expertise (investment bankers, accountants, lawyers, valuers)
HKEx is committed to build on its historic success and further strengthen its
role as a premier capital formation centre for China enterprises as well as an
international financial centre
29
HKEx’s strategic focus
Goal
Geographical
focus
Business
focus
Operate a quality market through
enhancing regulation and market
infrastructure
Focus on Hong Kong and
Mainland China
Focus on core market
operations:
• Listing
• Cash & Derivatives
Trading
• Clearing
• Information Services
• Market systems
30
HKEx’s mission statement
The mission of HKEx is to operate a world-class marketplace for
Hong Kong and Mainland China securities and derivatives products.
By offering issuers access to international capital markets and maintaining an
open, secure, fair, orderly, efficient and transparent marketplace,
HKEx
contributes to Hong Kong’s status as an international financial centre
.
and the premier capital market for Mainland China.
By servicing China’s substantial long-term demand for capital and exchange
services in accordance with international standards and practices, HKEx has
the potential to become one of the world’s pre-eminent exchanges.
31
Thank you
www.hkex.com.hk
32