Investing.com -- Hong Kong Exchanges & Clearing Ltd. (HKEX) is looking to modify some of its initial public offering (IPO) requirements. This move comes as the city aims to revamp its stock market following a tough period for Chinese shares.
On Thursday, the exchange sought market feedback on proposals that would lessen the time cornerstone investors have to retain their IPO shares and simplify the process for mainland China-listed companies to offer shares in Hong Kong. These proposals were part of a consultation paper published on Thursday.
The exchange is suggesting a "staggered release" approach where half of the stock allocated to cornerstone investors would be released after three months, and the remaining half would be available for sale after six months. Currently, cornerstone investors are required to hold onto their shares for a minimum of six months in exchange for a guaranteed allocation in an IPO. This change could potentially attract more investors, especially during periods of market instability.
HKEX is also considering lowering the number of shares that mainland-listed firms must issue when seeking listings in Hong Kong. This proposal comes as the city's dealmakers are counting on these companies to boost the 2025 share-sale pipeline.
The consultation suggests that shares issued by mainland-listed firms in Hong Kong should represent at least 10% of total shares, or the companies should have an expected market value of at least HK$3 billion ($386 million) at listing. The current rules mandate these issuers to list at least 15% of their shares, a requirement that might be excessive for companies with large market capitalizations that do not need to raise substantial cash immediately.
The consultation also discusses modifying the clawback mechanism for retail investors in IPOs. Under current rules, retail investors can be allocated up to 50% of a deal when the subscription ratio exceeds a certain level. The exchange is proposing to reduce this to 20% if issuers initially reserve 5% of the shares for public distribution.
This mechanism has been a point of contention for Hong Kong's investment bankers, who argue that it leaves them with limited stock to distribute to institutional investors when there's high demand for IPOs. A recent example of this issue was the $743 million IPO of China Resources Beverage Holdings Co. in October, which saw a 234 times subscription by retail investors. Excluding cornerstones, institutional investors were only allocated about 209 million shares, worth approximately HK$3 billion ($386 million) at the IPO price.
According to the exchange, preliminary discussions with bankers, investors, and issuers were held from September to November before initiating the consultation. The consultation will continue through March 19, 2025.
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