IPO Prospects|Drip Irrigation Stock Exchange, founded by the former head of the Hong Kong Stock Exchange, the “cash rights” investment paradigm is awaiting market testing

Li Xiaojia, the former head of the Hong Kong Stock Exchange, may soon get a Hong Kong stock IPO.

Recently, DiGuantong International Investment Co., Ltd. (hereinafter referred to as “Dripping Investment”), founded with the participation of Li Xiaojia, the former CEO of the Hong Kong Stock Exchange, officially submitted a listing application to the main board of the Hong Kong Stock Exchange. HSBC is the sole sponsor. According to the prospectus, Drip Irrigation Investment was incorporated in the Cayman Islands on May 23 this year and has not yet begun operation or business. Its investment goal is to generate income and distribute it to shareholders, and mainly to achieve this goal by investing in investments that can bring returns to the company based on the investors' cash flow.

It should be pointed out that the listed entity of Dripping Irrigation's investment this time is not the DiGuantong Group; the latter is an innovative fintech company founded by Li Xiaojia and Dongying Finance founder Zhang Gaobo in 2021. According to public information, the Dipper Connect Group wholly owns the Drip Kwun Tong (Macau) Financial Assets Exchange (MCEX), the world's first licensed income finance (RBF) exchange. It uses proprietary market infrastructure and technology to link institutional capital with micro, small and medium-sized enterprises, and collect and provide revenue sharing to global investors. By the end of 2024, the cumulative total distribution scale of MCEX's listed distribution reached RMB 4.61 billion, and the total number of RBOs issued and listed exceeded 13,000, recovering share revenue of RMB 2.44 billion for investors.

Zhitong Finance noticed that on June 19, DiGuantong published an article signed by Li Xiaojia, stating that the DiGuantong Investment Plan will hire an investment management company under the DiGuantong Group as its investment manager, and will focus on cash flow investment in the future. The capital raised from the Hong Kong stock listing is expected to be invested in various cash flow investment opportunities in a systematic, large-scale, and decentralized manner.

In fact, the listing of Drip Irrigation Investment marks the beginning of the 3.0 phase of Drip Irrigation Connect, and also marks “a new stage in the 'cash rights' investment paradigm other than equity and bonds.” In phase 1.0, Drip Irrigation has its own capital, with more than 10,000 small stores in more than 200 cities in China, with a cumulative investment of more than 4 billion yuan to “open the model, sample, and pilot”; in the 2.0 phase thereafter, product standards, accounting standards, valuation methods, risk control ratings and trading systems under the cash rights investment paradigm were gradually formed and opened for use by market participants. Meanwhile, along with the investment and listing of drip irrigation, large-scale capital raised will join hands with professional investors from all over the industry to jointly sail into the blue ocean of investment.

Admittedly, looking back at the development process of the modern economy and society, it is easy to find that every major economic transformation and the rise of major economic and financial powers is accompanied by influential and continuous financial innovation. But at the same time, it must be acknowledged that not all financial innovations can bring progress and inclusiveness; in the midst of this, quite a few innovations have ultimately failed.

Looking back at Drip Irrigation Investment, due to the company's own positioning and the special nature of its business, whether it can successfully knock on the Hong Kong Stock Exchange in the future, and even lead global capital into the so-called huge blue ocean of “cash rights.” These questions, at least for now, can only be given further “answers.”

First of all, on the positive side, we all know that in traditional financial markets, high valuations and high thresholds are like gaps that are difficult to overcome. This is especially true for small and micro enterprises. However, the investment tool used by Drip Irrigation Investment, which combines the simplicity of “investment+return” of claims and the flexibility of “risk/return” in equity market pricing, uses cash flow as an anchor and a pricing benchmark for measuring return on investment, so it is theoretically easier to create financial products that cover a wide range of real economies. From the above perspective, drip irrigation investment is equivalent to building a bridge between international “big” capital and “small” enterprises, bringing new possibilities to the financing and investment market for small and micro enterprises.

However, the drip irrigation model has sparked widespread discussion as early as 2023. Some critics believe that its revenue sharing model is unsustainable, and there are also market voices that believe that it has many vague areas in terms of compliance, and potential risks still need to be fully assessed.

As for the significance of drip irrigation investment being listed in Hong Kong, Li Xiaojia pointed out in the aforementioned article that Hong Kong can use this to connect with the country's “inclusive finance” and “technology-driven” strategies, consolidate its status as an “offshore RMB hub”, and become a new highland connecting global capital with Chinese labor entrepreneurs and technological innovators.

Also, it should be clarified that Dripping Investment's current sprint listing is not based on traditional listing rules, but is based on the extremely rare section 21 of the Hong Kong Stock Exchange's “Listing Rules”, that is, submitting a listing application to the Hong Kong Stock Exchange in the form of an investment company. However, since relevant departments in Hong Kong have not encouraged the listing of such companies in recent years, there have been few successful cases. According to reports, the Hong Kong Stock Exchange has not listed Chapter 21 companies in nearly 15 years. Under these circumstances, whether drip irrigation investment can actually use the “bonus” of being a founder to realize the Hong Kong Stock Exchange's dream with endless room for imagination in financial innovation is probably even more intriguing.

Precisely because Drip Irrigation Investment is in accordance with Chapter 21 of the “Listing Rules”, the company is not required to disclose performance records for at least three years like a typical Main Board IPO, and does not disclose any investment or performance records in its prospectus. Furthermore, the company's sale can only be participated in by professional investors and cannot be sold to the public; if the issuance of shares is completed in the future, all investors who subscribe for shares will form all shareholders of Drip Irrigation Investment, and the company's directors and investment managers will not hold any shares.

According to the official “Drip Irrigation White Paper” of the Drip Irrigation Group, the name “Drip Irrigation Connect” is inspired by Israeli agricultural irrigation technology and is intended to support the development of small and micro enterprises in the form of accurate and continuous investment. In the future, Zhitong Finance will keep an eye on whether Li Xiaojia's Drip Irrigation Investment and the Drip Irrigation Group can leave more marks on capital markets in China and the world as its name suggests, and even achieve inclusiveness.