This article first appeared on SCMP  as an opinion by Jianggan Li. Republished here with permission. You can access the other commentaries from the author on SCMP as well. 

Several Southeast Asian tech companies have announced plans for public listings in the near future, among them Grab, the region’s highest-valued private tech firm; GoJek and Tokopedia, two of Indonesia’s largest unicorns, which intend to merge and jointly work towards a listing; and Traveloka, the region’s largest online travel agency.

This is in addition to the dozens of smaller tech companies (valued between US$500 million and US$2 billion) that have been approached by various special-purpose acquisition companies, or SPACs – shell companies that raise funds in an initial public offering (IPO) with the intention of buying a private company and merging with it so the acquired company becomes listed. Grab is also in talks with a SPAC for a listing, according to reports on Friday.

While the Indonesian companies are talking about US-Indonesia dual listings, most of the top-tier companies seem to be pretty sure that the United States is their listing destination.

Sea Group – which owns the region’s largest gaming platform, Garena, and biggest e-commerce platform Shopee – is a role model for many aspiring companies going for an IPO. Sea has been listed on the New York Stock Exchange since 2017 and its stock price rose fivefold last year.

The region’s stock exchanges are also sharpening their knives, trying to cash in on this listing trend. The Singapore Exchange (SGX) is reportedly changing rules to allow SPACs by the end of this year, while the Indonesia Stock Exchange (IDX) is working on a series of reforms, including dual-class shares.

The Hong Kong index’s 2018 reforms have put it in a good position for tech listings. Photo: AP

How about Hong Kong?

It seems that Hong Kong is not on top of people’s minds. This should not be the case.

Compared with any of the regional exchanges in Southeast Asia, Hong Kong Exchanges and Clearing (HKEX) is not only much larger and more trusted, but also the most experienced with tech stocks.

HKEX’s average daily turnover of HK$129.5 billion (US$16.7 billion) last year was 20 times larger than the Singapore Exchange (SGX), and more than 25 times that of the Indonesia Stock Exchange (IDX).

HKEX, under the stewardship of previous chief executive Charles Li, underwent a number of reforms in 2018, including allowing weighted voting rights (WVR) and pre-revenue biotech companies. The launch of the Hang Seng Tech Index last year was also a significant attempt to create an Asian version of Nasdaq, the tech-heavy American exchange.

The geopolitical tension between China and the US has had little negative impact on the HKEX. While the strained ties caused some capital (and bankers, traders, and analysts) to seek shelter in Singapore and other places, the HKEX still posted growth on the back of the secondary flotations of US-listed Chinese tech companies in Hong Kong and the Stock Connect scheme that allows mainland investors access to the Hong Kong market.

Hong Kong also has a geographical advantage – it is in the same time zone as Singapore, and only one hour ahead of Jakarta. Anxious founders, early employees and investors will not need to stay up at night to monitor share prices.

In addition, compared with the US, founders listing their companies in Hong Kong will face fewer ongoing compliance risks and obligations after the IPO.

Since 2020, not only have we seen new mega listings of Kuaishou Technology and JD Health, but also secondary flotations of US-listed Chinese tech companies such as NetEase and

Kuaishou Technology raised US$5.4 billion after pricing its Hong Kong initial public offering at the top of a marketed range. Photo: Bloomberg

Why not Hong Kong?

So why is Hong Kong not yet the top listing destination for Southeast Asia’s largest tech companies? I will try to answer by providing three reasons.

First, familiarity is a big factor – and it runs both ways. Many of these big tech companies are founded by entrepreneurs educated in the US, or surrounded by US-educated investors and senior executives. Hong Kong’s capital market does not naturally come to their minds. Emotionally, having their company listed in the US feels much better than any other option. There is also a perception that listing in the US will give companies a higher liquidity.

Second, while one would assume that the presence of some of the region’s top tech players on the Hong Kong exchange (for example Meituan, Tencent, and Alibaba – which owns the Post) would draw in the crowd, our understanding in Southeast Asia is that tech financiers here are less exposed to the HKEX on the likes of listing rules and IPO processes compared with the SGX and IDX.

For example, I’ve seen IDX directors and commissioners on Clubhouse a few times this month, familiarising investors and entrepreneurs with their regulations, incentives and ongoing reforms.

Third, while many Chinese private equity funds and wealth managers have invested in Grab, and Richard Li’s Pacific Century Group is reportedly in talks to back Indonesia’s Tokopedia, most Hong Kong investment banks are not yet familiar with Southeast Asia’s tech companies.

On top of this, investment banks in Hong Kong prefer to work on IPOs for Chinese tech companies rather than those from Southeast Asia. Kuaishou’s IPO raised US$5.4 billion, and the IPO of Ant Group – an affiliate of Alibaba – would have raised more than US$30 billion had it gone through.

In comparison, only three privately held tech companies in Southeast Asia have a valuation of more than US$5.4 billion, namely Grab, Gojek and Tokopedia.

The short-term appeal for Hong Kong investment bankers is obvious, with international investment banks – which are more global and have more resources – more incentivised to take on IPOs for Southeast Asian companies. Other parts of the ecosystem, from institutional investors to equity analysts, behave the same.

Grab, Southeast Asia’s highest-valued private tech firm, is considering a US listing. Photo: Reuters

What can be done?

First, Chinese investment banks with a strong presence in Hong Kong that are also involved in the Singapore market could be easy outposts for Hong Kong’s financial market in Southeast Asia. With the right direction from the head office, and with networking and dedication, they can find and work on many financing deals with the region’s tech companies.

Second, while the US bourse will be preferred by the region’s leading tech unicorns, dual listings in Hong Kong or IPOs of the next cohort of tech companies – with valuations of under US$2 billion – are quite possible.

Of course, this will take time. Building trust and familiarity takes time. And it will take not just the HKEX, but also investment banks, private funds, and analysts, moving in the same direction.

Had the Ant Group IPO gone through, it would have been a great role model for the other tech companies, and raised HKEX’s global profile. Ultimately, compared with Meituan, and other Chinese tech giants, Ant is a much better known (and followed) name in Southeast Asia.

The good thing is that more Chinese capital is now involved in private tech deals in Southeast Asia, and this can speed up the learning curve for tech companies and the entire ecosystem.

Together with Cento Ventures, Momentum Works has been tracking tech investment deals in Southeast Asia, and last year we recorded more than 50 tech deals involving Chinese investors – a big increase from 2014 when that figure was in the single digits. This shows that more tech founders in the region now have a Chinese background, or Chinese capital backing them.

For Hong Kong to retain its position as a regional financial centre, attracting Southeast Asia’s companies to list in the city will be highly strategic and beneficial in the long run.

When big tech firms emerge in the region, they will also pull up the surrounding ancillary ecosystem (as well as more successful tech companies) for years to come.

The groundwork has been laid, and it’s time to remind Southeast Asia’s tech ecosystem that Hong Kong’s financial market is a force to be reckoned with.

Hong Kong should not let this opportunity pass by.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].