Hong Kong’s IPO Revamp: A Bid to Regain Global Dominance
Hong Kong is poised to reclaim its title as the world’s top initial public offering (IPO) destination, thanks to a proposed overhaul of its listing rules. The city’s bourse operator, Hong Kong Exchanges and Clearing (HKEX), is seeking public feedback on a plan to reduce the public float requirement and increase the proportion of new shares for subscription by institutional investors.
A Competitive Edge
Industry experts believe the reforms will give Hong Kong a competitive edge in attracting more IPOs. “Historically, Hong Kong’s public float requirement has been more restrictive compared to other global exchanges,” said John Lee Chen-kwok, vice-chairman and co-head of Asia coverage at UBS in Hong Kong. “The proposed reform will allow listing candidates more flexibility in deciding on their share offerings, enhancing Hong Kong’s competitiveness as a listing venue.”
IPO Proceeds Soar
Hong Kong has already seen a surge in IPO proceeds, with a 87% year-on-year increase to US$11 billion in 2024, according to the London Stock Exchange Group. This has elevated the city to fifth on the global IPO league table, up from 13th in June and eighth in 2023. Hong Kong was the world’s top IPO venue seven times between 2009 and 2019.
Current Rules
Under current rules, IPOs must offer at least 25% of their total issued shares to the public at a market value of at least HK$125 million (US$16 million). Big players can apply for a waiver to lower the threshold to 15%. The requirement, put in place in 1989, aims to ensure sufficient shares are available for trading.
Proposed Changes
The HKEX proposal would require large mainland-listed companies to float at least HK$3 billion worth of shares in Hong Kong, or 10% of their outstanding capital. The public float for smaller companies would be reduced to between 5% and 25%, depending on their market value.
Attracting Mega-Sized Companies
“The rule change is particularly important to attract more mega-sized mainland-listed companies to list in Hong Kong, as they have already listed in Shanghai or Shenzhen,” said Lee. “The rule change would dismiss their concerns and attract more big mainland players to seek listings in Hong Kong.”
Share Allocation Reforms
HKEX’s proposed changes to share allocations aim to make more shares available to institutional investors. The retail allocation cap under the clawback mechanism for a popular IPO would be lowered to 20% from 50%, making more shares available to institutional investors.
Balancing Retail and Institutional Participation
“The reform still allows retail investors to have a decent portion of the allocation,” said Lee. “The change balances the retail and institutional participation to further the development of Hong Kong as an international financial centre.”
Concerns from Local Brokers
However, local brokers worry that the change would put IPOs out of the reach of the city’s retail investors. “All stock markets will be active only if there are both large and small investors,” said Legislative Council member Robert Lee Wai-wang.
Evolution of the Market
King Au King-lun, an executive director of the Financial Services Development Council, believes the reform is needed given the decline in retail investor participation over the past two decades. “Hong Kong has evolved from a local market into a leading international financial centre,” Au said. “The IPO rules need to be updated to reflect the market dynamic and attract more global institutional investors to invest in our stock market.”
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