With the PRC’s Belt and Road Summit 2017 having just taken place in May 2017, one of the key messages from the summit was that, even with over US$100 billion in funding pledges from the PRC government and other participating countries, greater private sector participation will be required to bring the Belt and Road projects into fruition. With a recent Asian Development Bank report estimating that developing Asia will require infrastructure investment of US$26 trillion from 2016 to 2030 for the creation of new infrastructure and to maintain or upgrade existing infrastructure, it is clear that the Belt and Road initiative is not unique in seeking private sector investment to address such massive investment needs.
For infrastructure projects globally, private sector investment represents an important source of funding as governments look for ways to reduce spending (or exhaust traditional ways of raising revenue). Due to increased regulatory capital needs, lending banks may also face greater difficulty in providing the long-term project finance needed by infrastructure projects. Listing infrastructure projects and raising funds from the equity capital markets can be a dynamic way for infrastructure companies to tap into greater numbers of private sector investors, providing investors with access to infrastructure assets while maintaining flexibility on the size of their minority stakes and exits.
Against that background, certain timely developments have taken place in Hong Kong which may help to lay the foundation for more Asian infrastructure listings.
In April 2017, the Hong Kong Securities and Futures Commission (SFC) released a statement on its approach regarding proposed listings of infrastructure project companies on The Stock Exchange of Hong Kong Limited (SEHK) in response to a number of such companies expressing an interest in listing in Hong Kong, in particular those falling within the Belt and Road Initiative. The SEHK has also stated in various news reports that it will start consultations at the end of May 2017 on the launch of a new listing market in Hong Kong (the “third board”, after the Main Board and the Growth Enterprise Market), with new rules which would allow more listings of infrastructure firms and overseas companies on the Belt and Road initiative, and also companies with dual share-class structures.
While the SFC’s statement provides a measure of clarity regarding its view of such listings, it also underscores the caution it exercises in welcoming such “risky” listings. The introduction of the third board, however, with more flexible rules for listings of infrastructure projects, could result in Hong Kong becoming an attractive listing venue for infrastructure projects in Asia and play a key role in bridging the infrastructure funding gap.
Nonetheless, project owners and investors contemplating a listing of infrastructure projects in Hong Kong should consider from the outset the SFC’s mitigation factors and the current requirements of the SEHK Listing Rules, as the ability to satisfy the SFC and the SEHK on these matters will be critical to a successful listing in Hong Kong.