HKEx Proposes to Improve IPO Market pricing and Other Public Market Rules

 

On December 19, the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX) (HK: 0388), published a consultation paper seeking market advice on proposals to optimize the pricing of the initial public offering (IPO) market and the open market. The consultation period will last three months and end on March 19, 2025.

 

According to the paper, the SEHK proposes to reform the IPO market pricing process and the regulatory framework for the open market to ensure that its listing system is attractive and competitive for existing and potential issuers. Specific measures included increasing the participation of investors with bargaining power, reducing the gap between the final offer price and the post-listing trading price, ensuring sufficient shares for public investors, and relaxing certain limitations on public float.

 

Once the above measures are implemented, there will be drastic changes in IPO pricing and new share acquisitions in the Hong Kong market. For example, it will allow issuers to revise the final IPO price upwards by up to 10% of the indicative offer price range without delaying the IPO timetable, thus making the Hong Kong market more competitive.

 

Concerning the regulatory lock-up for cornerstone investors, HKEx proposed two options. The former is whether to support retaining the lock-up period requirement of at least six months after the listing date for cornerstone investors. The latter is to consider allowing cornerstone investors to have a phased release of relevant securities. 50% of relevant securities may be released from the lock-up restriction after three months from the listing date, while the remaining securities will be fully released after six months from the listing date.

 

The existing relevant provisions have caused some nuisance to Hong Kong-listed companies and investors. For example, although it is stipulated that the initial public float of listed companies with a market capitalization of HK$10 billion or more is set at 15% to 25%, several mega-cap issuers have, through waivers, set their initial public float at less than 15%, thus reducing the incentive for mega-cap new applicants to list on the Stock Exchange.

 

HKEx therefore proposes to impose a tiered minimum public float requirement for listing. For companies with a market capitalization below HK$6 billion, the minimum public float will remain at 25%. For companies with a market capitalization ranging from HK$6 billion to HK$30 billion, the expected market value of the relevant securities held by the public at the time of listing is equivalent to a percentage of HK$1.5 billion or 15%. For companies with a market capitalization of more than HK$70 billion, the expected market value of the relevant securities held by the public at the time of listing is equivalent to a percentage of HK$7 billion or 5%.

 

HKEx's Head of Listing, Katherine Ng, said HKEx is committed to ensuring that the listing framework and requirements are robust and competitive, reinforcing Hong Kong's position as the world's leading capital formation center. The proposal is intended to enhance the openness, transparency, competitiveness, and attractiveness of the Hong Kong market to global issuers and investors.