By Denny Thomas and Elzio Barreto

Hong Kong has been the most popular location for share listings from Chinese state-owned and private enterprises for three decades, making it the world's leading destination for initial public offerings (IPOs).

Mainland companies have long been drawn by Hong Kong's standing as a global financial hub, stable legal regime and large pool of institutional investors, but the downside of those benefits is a much lower share price than they could achieve on mainland bourses.

Over two-thirds of shares listed in both Hong Kong and China trade at a premium of more than 50 percent in the mainland, according to a UBS research report. That gap has substantially widened since 2014, making it less appealing for companies to raise secondary funds in Hong Kong.

The premium arises because of restrictions on capital flows to and from China, which create artificially high demand for local stocks. That demand has risen as alternative investments such as real estate faltered in China's slowing economy.

At least 10 Chinese companies with Hong Kong listings have unveiled plans to either delist, spin off assets and list them in China or sell a controlling stake to a mainland-listed company since November 2015. There were only a handful of such deals in each of 2012, 2013 and 2014.

There were still nearly 30 Chinese companies that listed in Hong Kong over the same period, but those deals were much smaller, and IPO fund raisings fell 18 percent in 2015.

"Selected Chinese entrepreneurs will be tempted to delist their companies from Hong Kong if the A/H premiums continue at these high levels," said Prashant Bhayani, chief investment officer, Asia for BNP Paribas Wealth Management, which oversees $64.5 billion in assets.

UBS has identified 38 Hong Kong-listed Chinese companies with similar characteristics to those recently delisted, using criteria such as negative share price performance since listing, a forward price-to-earnings (P/E) multiple below 30 and where founders own more than 40 percent of the companies.

The top 10 companies in the UBS list have a combined market value of about $40 billion, and eight belong in the property sector, including Country Garden Holdings Co (>> Country Garden Holdings Company Limited) and Shimao Property Holdings (>> Shimao Property Holdings Limited).

Shimao said it had no plans to delist from Hong Kong and was happy with its current structure, with a Shanghai-listed unit focussing on commercial property, while Country Garden said it studied "everything that can help with the valuation, to create better return for the investors".

ALLY IN CHINA REGULATOR?

Since Wang's Dalian Wanda Commercial Properties (>> Dalian Wanda Commercial Properties CoLtd) announced its plans, China's No. 2 listed developer, Evergrande Real Estate (>> Evergrande Real Estate Group Limited), bought a controlling stake in a smaller, loss-making rival listed in Shenzhen, the main attraction being its lofty valuations and access to China's capital markets through the mainland listing.

"Property companies, when they go public in Hong Kong, one of the reasons is to be able to do foreign issuance (of bonds), have better credit rating and cheaper financing," said Ringo Choi, Asia-Pacific IPO leader at consulting firm EY. "But now, when you look at the bond market in mainland China, it's getting more and more popular. So if you're listed in the A share market, it's very easy to issue bonds also."

Listing fees remain a big part of HKEX's turnover, accounting for about 9 percent of total revenue, compared to a tenth a decade ago.

"How, when and where a company lists are commercial decisions determined by a wide variety of factors, but we are convinced that Hong Kong remains a very competitive listing centre with many advantages," HKEX said in a statement.

HKEX could also have a valuable ally in the China Securities Regulatory Commission, which said on Friday that it was concerned by the huge valuation gap between domestic and overseas stocks and speculation on shares in shell companies, which can be used to repatriate overseas-listed companies.

The regulator has only said it is studying the issues, but if it takes action to address the gap or deter such relistings, that could help avert or at least delay any day of reckoning for Hong Kong.

"Hong Kong will face competition from Shanghai and Shenzhen for hosting big Chinese companies, but we are not there yet," said BNP's Bhayani.

(Reporting by Denny Thomas and Elzio Barreto; Additional reporting by Clare Jim; Editing by Will Waterman)