Listing in Hong Kong an International Financial Centre in Asia and a Gateway to China Christine Lie Vice President Issuer Marketing Division Hong Kong Exchanges and Clearing Limited September 2008 Toronto, Canada 1
Hong Kong is well recognized as a competitive international financial centre If any Asian centre is to join London and New York as a GLOBAL financial centre, Hong Kong is the strongest contender. 2007 Hong Kong remains comfortably in the third place, it has retained a strong position in the five key competitiveness areas - 2008 The City of London Corporation - Global Financial Centres Index Source: City of London Corporation: Global Financial Centres Index (March 2008) 2
Ny lon kong A Tale Of Three Cities (New York, London and Hong Kong) Time Magazine January 2008 Three connected cities drive the global economy. 3
Why choose Hong Kong? - scale and liquidity Only New York, London (LSE) and Tokyo are larger international equity markets than Hong Kong (i.e., it is larger than TSX and twice the size of ASX) Average daily turnover of USD11.32bn (2007 figure) runs at 3-4x that of ASX - deep liquitidy pool made up of international and local investors In excess of USD1.2tn of funds are managed in Hong Kong New pools of capital for Canadian companies include local retail and local institutions, which typically represent about 50% of demand for Hong Kong equity raisings Proven track record of handling mega-ipos and commanding high valuation for newly listed companies comparable to US / Europe counterparts Mining market cap increase from 2002 to 2007 was five times faster than ASX 4
Scale As at July 2008 market capitalization of HKEx rank 7th in the world and 3rd in Asia Over the last decade, size of HKEx increased 6.2 times - one of the largest increase among world exchanges World Ranking July 2008 Exchange Market Cap As of 1998 (USD bn) Market Cap As of July 2008 (USD bn) Increase in size over the last decade (times) 1 NYSE 10,272 13,418 1.3x 2 Tokyo 2,440 3,926 1.6x 3 Nasdaq 2,524 3,628 1.4x 5 London 2,298 3,173 1.4x 7 Hong Kong 344 2,122 6.2x 8 Toronto 548 1,875 3.4x Source: Taiwan Stock Exchange for 1998 figures; World Federation of Exchanges for Jul 2008 figures 5
Total market capitalisation in Hong Kong 1,261 listed companies in Hong Kong (31 Aug 2008) 453 Mainland enterprises contributing 57% of market capitalisation Over 110 overseas companies, many of which with Mainland nexus 3,000 Market Capitalisation (US$bn) 2,500 2,000 1,500 1,000 CAGR 15% 1,710 2,654 2,275 1,962 500 0 Source: HKEx statistics 1,049 858 607 623 711 381 446 411 506 341 463 267 301 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Aug 2007 Aug 2008 6
Hong Kong is one of the most international capital markets of the world with the highest level of international fund participation 1,014% 1000% 800% The market cap vs GDP ratio of 1,014% implies large inflow of international funds to the market and this shows the high degree of financial intermediation capability of the Hong Kong market 600% 400% 200% 136% 130% 119% 92% 0% HK Australia USA UK Japan Note: Market Capitalization as of 6 August 2008, and GDP ratio is FY2007 Source : International Monetary Fund & World Federation of Exchanges 7
Liquidity Average daily turnover in our cash market USD bn 12 Average daily turnover in 2008 increased by more than 6 times compared with year 2000 11.32 10.35 10 8 6 4.36 4 2 1.63 1.05 0.85 1.34 2.05 2.35 0 2000 2001 2002 2003 2004 2005 2006 2007 Jan-Aug Source: HKEx 2008 8
Why choose Hong Kong? - a recognized international fund raising platform Proven track record of some of the world s largest IPOs Three of the world s top 10 IPOs were listed in Hong Kong Company Global Offering USDbn Date of Listing Industrial and Commercial Bank of China 21.9 20/10/2006 NTT Mobile Communications 18.4 12/10/1998 Visa Inc. 17.9 18/3/2008 Ente Nazionale per I Energia 17.4 31/10/1999 Deutsche Telekom 13.0 17/11/1996 Bank of China 11.2 24/5/2006 Rosneft 10.7 14/7/2006 AT&T Wireless Services 10.6 26/4/2000 Telstra Corporation 10.0 15/11/1997 China Construction Bank 9.2 20/10/2005 Source: Dealogic statistics 9
Fund raising platform Hong Kong s liquid secondary fund raise capability is a major attraction for issuers 80 70 60 28% 50% USD bn 50 40 30 34% 55% 28% 64% 55% 50% 50% 20 10 66% 45% 72% 36% 45% 50% 36% 64% 0 2004 2005 2006 2007 Jan - Aug 2008 Total fund raised 36.2 38.8 67.4 75.9 21.5 IPO 12.5 21.3 42.9 37.6 7.9 Post IPO 23.7 17.5 24.5 38.3 13.6 Source: HKEx 10
Why choose Hong Kong? - valuations Coal Price/2009E EPS Precious Metals Price/2009E EPS Times (x) 16 13.7 x 14 12 10 11.2 x Times (x) 20 15 10 5 18.7 x 17.2 x 12.5 x 11.7 x 9.0 x 8 6 4 8.1 x 7.1 x 0 12 HKEx NYSE TSX LSE ASX Base Metals Price/2009E EPS 10.8 x 9.2 x 9.1 x 2 0 NM HKEx NYSE ASX TSX LSE Times (x) 8 4 6.3 x 4.9 x Source: Citibank;Factset 0 NYSE HKEx ASX TSX LSE 11
Why choose Hong Kong? - investor base Total of 43% from overseas investors Total of 64% from institutional investors Local retail investors, 28% Brokers' principal trading, 4% Asian Countries Percentage Mainland 8.2% Singapore 6.6% Japan 3.7% Taiwan 1.4% Asia, 22% Overseas institutional investors, 39% Others, 6% Europe, 16% Local institutional investors, 25% Overseas retail investors, 4% Source: HKEx Cash Market Transaction Survey 2006/07 UK, 27% USA, 29% 12
Why choose Hong Kong? - research coverage Major global resources sector investors are in Hong Kong Invested in HKEx mining companies Have funds physically managed in HK and invested in the sector Templeton Asset Management Y Y Blackrock Investment Management Y Halbis Capital Management Y Y Barclays Global Investors Capital Management Associates Y Y JF Asset Management Y Y Fidelity Y Y INVESCO Y Y Genesis Investment Management Y Major mining sector research houses are in Hong Kong ABN Amro, BNP Paribas, Bank of China, Citibank, CLSA, Credit Suisse, Deutsche Bank, JP Morgan, Merrill Lynch, Morgan Stanley, UBS 13
International funds come to Hong Kong through the presence of brokers from over all the world Place of Origin for Cash and Derivatives Market Exchange Participants (YTM Apr 2008) America (Cash / Derivatives) Bermuda : 5 / 2 British Virgin Islands : 13 / 5 British West Indies : 1 / 0 Canada : 4 / 1 Cayman Islands : 0 / 1 US : 16 / 9 Asia (Cash / Derivatives) Australia : 4 / 1 Indonesia : 1 / 0 Hong Kong : 305 / 75 Japan : 11 / 4 Korea : 1 / 0 Mainland China : 26 / 13 Malaysia : 6 / 2 Philippines : 1 / 0 Singapore : 7 / 4 Taiwan : 22 / 7 Thailand : 1 / 0 Others*: 1 / 1 Year No. of Cash EP No. of Derivatives EP 2004 434 126 2005 429 137 2006 425 135 2007 439 140 2008 YTM 448 143 # Denotes EP with equal controlling interests from Belgium and the Netherlands * Denotes EP with equal controlling interests from China and Indonesia EMEA (Cash / Derivatives) Belgium : 2 / 1 France : 6 / 5 Germany : 1 / 1 Netherlands : 5 /3 Switzerland : 3 / 2 UK : 3 / 4 Bahrain : 1 / 0 South Africa : 1 / 1 Others # : 1 / 1 14
Hong Kong stands to benefit when China begins to open up its capital accounts in the future QDII Scheme The Through Train Scheme Apr 2006 Aug 2007 Chinese government announced QDII (Qualified Domestic Institutional Investor) scheme allowing Chinese institutions and residents to entrust Chinese banks to invest in financial products overseas (fixed income and money market products). Total investment as at June 08 at USD 54.6 billion Beijing announced plans to allow individual Mainland investors to invest in stocks in Hong Kong. However it was suspended as the scheme needs to be carefully analyzed and hence the plan was put on hold. We believe it is a matter of time before the estimated 100 million investor population in China can invest in Hong Kong 15
Potential investors to Hong Kong China s household financial wealth estimated at USD2.5 trillion and is estimated to increase to USD 5.5 trillion in 2011 Projected growth 2006-2011 (%) Millionaire Households in 2006 (000s) Greater China Hong Kong Taiwan China 573 USD4.77 T 47 217 310 0.54 1.75 2.48 USD6.80 T 0.64 2.11 4.05 USD8.6 T 12.5 0.72 2.36 5.53 5.9 6.2 17.4 2006 2009 2011 Source: BCG Wealth market sizing database 2007. Boston Consulting Group. Wealth Markets in China. 16
HKEx - a key regional equity fund raising center for M&M companies China Shenhua Energy (USD3,268m) --- China Nickel Resources (USD34m) China Coal Energy (USD1,938m) --- Zhaojin Mining (USD323m) --- Hunan Nonferrous Metals (USD262m) --- Lingbao Gold (USD127m) Xinjiang Xinxin Mining (USD575m) --- Hidili Industry (USD604m) --- China Molybdenum (USD1,039m) --- Sino Gold Mining (USD118m) Xingfa Aluminium (USD37m) 2005 2006 2007 2008 Source: Bloomberg / HKEx 17
Metals and mining is increasingly an important sector in Hong Kong more than 5% of companies have related businesses Market Cap (as of 31 Aug 2008) by Commodity Type Others 31% Gold 7% (as of 31 Aug 2008) Market Total (USD mn) Metals and Mining Sector (USD mn) % Market Cap 1,961,860 64,373 3.3% Copper 4% Aluminum 8% Coal 50% No. of companies 1,261 73 5.8% Average Daily Turnover 10,354 637 6.2% Source: HKEx 18
Examples of mining companies listed in Hong Kong Company Commodity Market Cap as at 31/8/08 (USD m) P/E (Times) China Shenhua Coal 11,764 22 China Coal Coal 6,971 23 Aluminum Corp of China Aluminum 3,550 8 Mongolia Energy Coal 5,622 313 Zijin Mining Gold 2,742 25 Sino Gold Gold 1,058 39* China Molybdenum Molybdenum 864 9 Hunan Nonferrous Metals Nonferrous 278 13 Xinjiang Xinxin Mining Nickel 238 4 An Australia-incorporated company listed on 16 March 2007 by way of secondary listing Market Cap Source: HKEx, *PE Data Source: Bloomberg as at 5/9/08 *Note: Sino Gold s P/E is prospective P/E. Company recorded net loss for 2007. Source: Bloomberg 19
Listing of Sino Gold - the first secondary listed mining company on HKEx has been well received by the industry Sino Gold Mining Limited - The Company explores, evaluates, develops and operates gold mines in the PRC through cooperative joint venture companies, each of which is formed by a wholly-owned subsidiary of the Company and a local PRC partner. - Listing Date: 16 Mar 2007 - Market Capitalization at IPO: US$983m US$1,058 m (as of 31 Aug 2008) - IPO Fund Raised: US$118m - Fund Raised after IPO: US$428m - IPO Price: US$ 5.4 (HK$42.5) - Price: Highest since date of listing - US$8.2 (HK$63.8) on 17 Mar 2008 - P/E: 38.48 (as of 31 Aug 2008)(Prospective P/E. Company recorded net profit loss for 2007. Source: Bloomberg) - Listing method: Hong Kong Public Offer (5 times over-subscribed) and International Placing (3 times over-subscribed) 20
The Stock Exchange - operates two boards targeting two groups of applicants Stock Exchange of HK Main Board Growth Enterprise Market For larger and more established companies which meet the profit / financial standards requirements Consultation completed, with effective of 1 July 2008, has been re-positioned as A second board and a stepping stone towards the Main Board 21
Basic listing rules: Quantitative financial requirements Main Board listing applicants must fulfill any one of the three tests below GEM admission requirement Profits Test Profits of 3 years USD6.4m (HKD50m), and Market cap USD26m (HKD200m) Market Cap / Revenue Test Market Cap USD513m (HKD4bn), and Revenue of the most recent audited year USD64m (HKD500m) Market Cap / Revenue / Cashflow Test Market Cap USD256m (HKD2bn), Revenue of most recent audited financial year USD64m (HKD500m) Aggregate positive cash flow for 3 preceding financial years USD13m (HKD100m) Operating cash > USD2.6m (HKD20m) in aggregate for latest 2 full financial years Market cap USD13m (HKD100m) 22
Basic listing rules: Operating history and management Main Board GEM 3 years operating history Management continuity for at least the 3 preceding years Ownership continuity and control for at least the most recent audited financial year a trading record period of at least 2 full financial years Management continuity for at least the 2 preceding financial years a continuity of ownership and control throughout the full financial year immediately preceding the issue of the listing document *New GEM Listing Rules have been effective from 1/7/2008 23
Other latest development on our market: the revamp of the Growth Enterprise Market (GEM) Reposition GEM as a Second Board A clear benchmark - applicants need to have achieved positive cash flow of not less than USD2.6 m in aggregate for the last two financial years Enhance time and cost efficiency - the power to approve admission of new issuers will be delegated from the GEM Listing Committee to the Listing Division Listing rule changes - Company only needs to fulfill minimum expected market capitalization of US$13 m No requirement to have a focused line of business Rules were simplified and statement of active business pursuits and initial management shareholders were dropped 24
Other latest development on our market: the revamp of the Growth Enterprise Market (GEM) A simplified transfer process to Main Board Listing: A simple transfer process - no need to appoint sponsor or financial advisor, no need to produce a prospectus or listing document, only an announcement would suffice Stepping stone to Main Board Listing - the process to transfer listing from GEM to the Main Board is streamlined and there will be a 50% reduction in the Main Board initial listing fee for all transfer 25
Streamlining the transfer process for GEM issuers to list on the Main Board From GEM to Main Board* Qualifications Meet Main Board admission requirements Had been listed on GEM for one year Had not been found in breach of the listing rules or been a subject of disciplinary investigations during the preceding 12 months Procedures Not require shareholders approval for the application for transfer No independent financial adviser is required Transfer will be processed by Listing Division and approved by Listing Committee *New GEM Listing Rules will be effective from 1/7/2008 26
Rules for mineral companies An application for listing from a company whose current activities consist solely of exploration will be considered if it can establish: The existence of adequate economically exploitable reserves of natural resources, which must be substantiated by the opinion of an expert, in a defined area over which the issuer has exploration and exploitation rights; An estimate of the capital cost of bringing the issuer into a productive position; and An estimate of the time and working capital required to bring the issuer into a position to earn revenue. The Exchange may accept a shorter trading record period and/or waive the financial standards (such as profit requirements) if the directors and management of the issuer have sufficient and satisfactory experience of at least three years in mining and/or exploration activities. Additional technical, geological and financial information regarding the natural resources to be included in the Prospectus. Note : See chapter 18 of Main Board Listing Rules for details 27
Rules for mineral companies Information required such as: Nature and extent of the company s rights of exploration, including description of properties, duration and principal terms of concessions Report by independent technical advisor on the basis of evidence of existence of natural resource, including estimated reserves and the evidence on which the reserve is based, geological characteristics, grade, anticipated mining recovery, etc. Statement of sufficiency of working capital with funding requirement estimate for the next 2 years 28
Listing process on HKEx An An issuer issuer decides decides to to list list on on HKEx: HKEx: Main Main Board Board or or GEM GEM Appointment Appointment of of sponsor sponsor & other other professional professional advisors advisors Restructuring, Restructuring, preparation preparation of of Accountants Accountants Report, Report, drafting drafting of of prospectus prospectus Sponsor Sponsor submits submits listing listing application application & related related document document to to the the Listing Listing Division Division of of HKEx HKEx GEM Main Board Roadshow Roadshow to to promote promote to to investors investors before before trading trading commences commences *New GEM Listing Rules will be effective from 1/7/2008 Review Review and and approval approval of of listing listing application application by by the the Listing Listing Division Division Hearing Hearing by by Listing Listing Committee Committee Review Review of of listing listing application application by by the the Listing Listing Division Division 29
Future for Hong Kong as a natural home to M&M companies source: an international investment bank While competition with the Shanghai Stock Exchange continues, Hong Kong is still home to some of the largest M&M companies from China Trend is to have a secondary listing in Shanghai for the bigger Chinese companies However, as a more established and more mature listing venue and market place, Hong Kong continues to be the anchor market and the desired listing venue for companies with operations in Asia, especially China Higher corporate governance standard and more stringent and strict listing rules give investors more confidence in the quality of the companies listed on the HKEx Future for the HKEx as a natural home to M&M companies: We expect more M&M companies to list on the HKEx, to take advantage of opportunities offered by the capital markets and better valuations as investors here understand and recognize the investment potentials Both as primary and secondary listing venue As more M&M companies list on the HKEx, we hope Hong Kong can become another natural home to M&M companies globally Like Canada / Australia / UK 30
Contact Us Issuer Marketing Division Add: 10/F, One International Finance Centre 1 Harbour View Street, Central, Hong Kong Tel: (852) 2840 3780 Fax: (852) 2530 2858 Email: imd@hkex.com.hk HKEx Corporate Website: www.hkex.com.hk Designated Issuer Website: www.hkexnews.hk 31