More Enterprises to be Listed in Hong Kong
Recently, SIPPA invited authoritative experts from HKEx, EY, Jones Day and Morgan Stanley to a high-end seminar on bio-pharmaceutical enterprises’ listing in Hong Kong. More than 150 guests registered and attended the event.
Felix Fei：The world is experiencing subversion. How do you secure the future of a company?
Firstly Felix Fei the co-leader of life science industry and assurance partner in Greater China of EY gave his outlook on the general trend of global life science industry. In his view, M&A will record a surge in the active capital market of life science industry in 2018. Therefore, industry leaders should consider capital allocation decision as the strategic emphasis of corporate development and seek to promote exogenous growth.
It can be seen from six aspects:
1) Core innovation: industry leaders will give priority to core innovation in 2018 and further expand market scope to hedge against rising price pressure from America.
2) Surge of M&A : following the 2017 tax reform approval in America, the demand for exogenous growth through M&A will exceed target evaluation. The M&A in life science industry in 2018 will probably exceed the $200 billion mark again.
3) Value delivery: previously, the life science industry’s response to market demand was lethargic because expectations are high on value delivery besides products. M&A, partnerships and development of data-centered platforms will be key to transformation in 2018.
4) Creative transaction structure: entrepreneurial enterprises are easier to offer IPO and be favored by private funds. In order to merge small and medium-sized life science companies, big companies must boast competitive and creative transaction structure.
5) Strong disrupters: pressure from new competitors beyond traditional life science field. Technology companies will take a big share from industrial value chain.
6) Probable return of large M&A: declining profits may trigger the largest deal in this industry, competition and continuous pressure on pricing from clients, and strong disrupters. Several big companies recording slow growth may find M&A an attractive strategy.
Two issues need special attention. First is that life science companies will focus on therapeutic field in 2018. This means that companies will prioritize certain diseases or target point and oncotherapy is likely to be the main battle field. Presently, more than ten international pharmaceutical companies control the sales of anticarcinoma drugs. However, Chinese innovative pharmaceutical companies will account for 5% of market share in future. Secondly, the outlook of industrial M&A in 2018 continues to be bullish. International pharmaceutical companies are holding around $160 billion in cash overseas. Besides, disrupters’ from non-pharmaceutical industry enjoy strong capital support, outstripping the pharmaceutical industry. Sufficient M&A capital means the advent of opportunities. Reforms in HKEx also ushered a new era for Chinese pharmaceutical companies.
Franky Chung: perfect timing for bio-pharmaceutical enterprises’ listing in Hong Kong
First, Franky Chung the SVP at HKEx gave the basic introduction of the Hong Kong capital market. In 2017, Hong Kong stock market was bullish, stock trading volume kept increasing at the third anniversary of Shanghai-Hong Kong Stock Connect and the first anniversary of Shenzhen-Hong Kong Stock Connect with mainland companies accounting for an increasingly higher percent in the Hong Kong market. Emerging enterprises favored by investors, including Meitu, Inc., China Literature Ltd., ThundeRobot and WuXi Biologics, rushed into Hong Kong to go public. Taking WuXi Biologics in life science industry as an example, WuXi AppTec was privatized and delisted from NYSE and split into STA, WuXi Biologics and WuXi AppTec in 2015. WuXi Biologics was listed in HKEx in June, 2017 with its market value reaching $8 billion and price earnings ratio of 301.3(January 15th).
Mr. Chung then summarized the advantages of listing in Hong Kong.
Why opt to go public in Hong Kong?
Efficient and Transparent Approval System
Transparent Listing Schedule
Abundant and Convenient Refinance Channels
Marketized Operation and Free Flow of Capital
Introduction of Talents
To conclude, he offered advice to biotech companies failing the finance qualification tests of main board, companies adopting WVR structures and companies creating a secondary listing route.
In cooperation with Future Development Directions in the Consultation Conclusions of New Board Market published in December 2017
Biotech: biotech companies failing to pass finance qualification tests of main board
WVR: companies adopting WVR structures
Secondary listing: creation of a new secondary listing route
Three new chapters in Main Board Listing Rules (Each suggestion in a new chapter)
Charles Chau: legal focus on mainland bio-pharmaceutical enterprises’ listing in Hong Kong
Successful enterprise listing cannot be done without an excellent team of lawyers and Jones Day is richly experienced in life science and health care. Charles Chau, partner in Jones Day Hong Kong office introduced legal offerings focused on mainland bio-pharmaceutical enterprises’ listing in Hong Kong.
He opined that legal advisers should be optimistic and proactively offer problem-solving services in addition to value-addition. Meanwhile, he suggested that enterprises should follow a set of conditions when choosing legal advisers. For example, the legal team should have extensive experience in assisting Chinese enterprises go public, be familiar with health care and biotech industry, play a critical role in this industry, have partners and lawyers participate in concrete work, input sufficient human resources and understand the working modes of investing banks. Besides, Mr. Chau also introduced, in detail, the division of labor of overseas lawyers for issuers and consignees in all important links of listing to ensure greater awareness of legal requirements in the process of listing.
Tang Liming: Tax focuses on mainland bio-pharmaceutical enterprises’ listing in Hong Kong
Tax-related issues, just as law issues, are important to enterprises that aim to be listed. Tang Liming, tax partner at EY, recently noted that several excellent bio-pharmaceutical enterprises have emerged in mainland of China. Although they are unable to gain profits in short term, they will witness rapid increase in ROE, making them attractive to investors in future. To guarantee the quality of bio-pharmaceutical enterprises to be listed in Hong Kong, protect the interests of small and medium investors and safeguard the good reputation of Hong Kong stock exchange , market supervisory agencies should put forward strict measures on the operation and compliance performance of enterprises. As issuing enterprises, besides satisfying basic compliance requests of listing, they should take major tax influence in the whole listing process into consideration and realize the most optimized tax profits through effective planning in different stages.
To be specific, stages can be divided into:
Before listing period: it includes the clearance of previously unsolved fiscal problems.
In listing period: it includes restructure of company shareholding.
After listing period: it includes compliance management of enterprise tax.
Cathy Zhang: The latest development of Chinese bio-pharmaceutical industry in the Hong Kong capital market.
Cathy Zhang, managing director at Morgan Stanley, introduced recent development of Chinese bio-pharmaceutical industry in the Hong Kong capital market combined with rich practical operation experience of Morgan Stanley. She noted an increase in biotech companies file listing applications and reluctance by some to go public in America or Hong Kong.
In her view, five factors should be taken into consideration when choosing listing destinations.
Firstly, if there are any successful precedents in the capital history.
Secondly is who the investor is。
Thirdly is capital flow after listing.
Fourthly is valuation.
And fifth is financing ability after listing.
In conclusion Morgan Stanley holds Hong Kong capital market in high regard for it allows biotech enterprises with no income or profits to be listed, creating huge opportunities for Chinese enterprises.
Harry Han: Focus in finance on mainland bio-pharmaceutical enterprises’ listing in Hong Kong
Harry Han the finance partner at EY, summarized finances on mainland bio-pharmaceutical enterprises’ listing in Hong Kong. He said attention should be paid on five financing aspects including revenue recognition, R&D expenditure, profit forecast, stock payment and deferred income tax assets.