Hong Kong Stock Exchange Aims to Simplify IPO Regulations
Investing.com -- Hong Kong Exchanges & Clearing Ltd. (HKEX) plans to amend certain initial public offering (IPO) requirements as it aims to revive the city's stock market following a challenging period for Chinese stocks.
In an advisory paper published on Thursday, the exchange sought market opinions on proposals that would reduce the holding periods for cornerstone investors' IPO shares and simplify the share offering process for companies listed in mainland China seeking to list in Hong Kong.
The exchange suggests a "phased release" approach, where half of the shares allocated to cornerstone investors would be available for sale after three months, and the remaining half after six months. Currently, cornerstone investors are required to hold their shares for at least six months in exchange for guaranteed allocations in an IPO. This change could attract more investors, particularly during periods of market instability.
HKEX is also considering reducing the number of shares that mainland-listed firms must issue when seeking a listing in Hong Kong. This proposal comes at a time when the city's dealmakers are banking on these companies to enhance their expectations for stock sales in 2025.
The advisory paper proposes that shares issued by mainland-listed firms in Hong Kong should represent at least 10% of the total shares, or that companies must have a minimum expected market capitalization of HK$3 billion (US$386 million) during the listing. Current rules require these issuers to list at least 15% of their shares, a potentially excessive requirement for large firms that do not immediately need significant cash.
The advisory paper also discusses changing the withdrawal mechanism for retail investors in IPOs. Under existing rules, when the subscription rate exceeds a certain level, up to 50% of a deal can be allocated to retail investors. The exchange recommends lowering this to 20% if issuers initially set aside 5% of shares for public distribution.
This mechanism has been a point of contention for investment bankers in Hong Kong. Bankers argue that when there is high demand for IPOs, limited shares remain for allocation to institutional investors. A recent example of this issue occurred with the HK$743 million IPO of China Resources Beverage Holdings Co., which was 234 times subscribed by retail investors in October. Excluding cornerstone investors, only about 209 million shares were allocated to institutional investors, amounting to around HK$3 billion (US$386 million) at the IPO price.
According to the exchange, preliminary discussions with bankers, investors, and issuers took place from September to November before initiating the consultation process. The consultation period will continue until March 19, 2025.