Reflecting On Corporate Finance
31 Dec 2022

As the end of the year approaches, spare a thought for GEM, the one time “growth” hope for small and medium sized enterprises (“SMEs”) on the Hong Kong Exchanges and Clearing Limited (HKEX).

There were no GEM listings in Jan – Oct 2022 (compared to 61 on the Main Board) and it seems likely that the year will close with a blank rather than a bang. This comes after a grand total of 1 GEM listing in 2021 (compared to 95 on the Main Board).

The only GEM listing in 2021 took a mind-boggling 894 days for the Stock Exchange to approve, well over two years. The process was so expensive that the costs of listing swallowed up over 80% of the proceeds.

Although there are over 350 companies listed on GEM, daily trading is around HK$100–200 million, one thousandth of the typical Main Board turnover. Clearly, something is drastically wrong.

The Exchange established a sub-committee to review GEM in 2021 but it only plans to consult on proposals some time in 2023. The Exchange’s most recent consultation allocates half a page (out of 172 pages) to “GEM Reforms”. The section concludes: “We are aware that our proposed Specialist Technology Regime will not necessarily address the fund raising needs of SMEs because of the large size required to qualify. The Exchange will explore other ways to address this as part of a separate exercise.” Don’t hold your breath.

Urgent action is required to support SMEs which have suffered during COVID. They are in aggregate the biggest employers in Hong Kong. If the Exchange is effectively closed to them, let a Hong Kong Nasdaq or other new exchange take up the challenge.

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