HKex chief says key to winning Saudi Aramco is primary connect

Hong Kong Exchanges & Clearing’s (HKex) bid to win Saudi Aramco's listing would get a boost from having a primary connect trading system with mainland China, according to its chief executive.

HKex has so far created three links with domestic Chinese markets, and the chief executive Charles Li has plans for several others. The primary connect, which would see shares in Hong Kong-based initial public offerings made available to mainland investors, would act as a lure to major companies, he said in on Thursday.

“For Saudi Aramco to consider listing in Hong Kong, just a pure Hong Kong listing would probably not be compelling,” Mr Li said. To be able to list in the city and sell shares into major Chinese institutions would be the “perfect catalyst” for primary connect, he said.

Saudi Arabia aims to sell about 5 per cent of Aramco in an IPO next year, and stock exchanges from the United Kingdom to Japan are vying for what may be the world’s richest public debut. The main contenders are bourses in London, New York, Hong Kong, Tokyo, Singapore and Toronto.

Primary connect is the “next big thing” said Mr Li, though he added that it “will take a while”.

The exchange operator’s shares fell as much as 5.4 per cent in Thursday morning trading, its biggest intraday drop in more than a year.

HKex posted second-quarter profits of HK$1.78 billion (Dh844.8m) on Wednesday, a 14 per cent increase from HK$1.55bn a year earlier. Revenue for the quarter was HK$2.76bn, the company said, compared with HK$2.73bn.

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Mr Li said on Wednesday that there is not a timetable for new links between Hong Kong and the mainland. As well as primary connect, other suggested systems would include exchange-traded funds and derivatives.

He sounded a bullish note on Thursday about London Metal Exchange, which HKex bought in 2012 and replaced its chief executive early this year.

“We had a few tough quarters, largely to do with both the industry challenges and our own managing of the exchange,” Mr Li said. “But we have engaged the industry very deeply in the recent discussion paper.”

“This is the most comprehensive engagement with the industry and we are turning the corner."

Mr Li also said the consultation for a proposed third exchange targeting new economy companies and allowing dual-class share structures is close to finishing. HKex was widely seen as having missed out on Alibaba’s IPO in 2014 in part because it did not allow multiple classes of stock.

“If there is a broader support for us to proceed we will proceed,” he said.

“If not, we may not proceed, that’s really basically the consultation. But I do believe the market has moved on from where we were a few years ago.”