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All about initial public offering(IPOs) in Hong Kong

An initial public offering (IPO) refers to a process by which companies can offer their share capital shares in the public market for the first time, thus enabling them to raise funds from investors. Hong Kong is one of the world’s most active markets for IPOs, accounting for 11% of global IPO volume and 5% of global proceeds in 2019.

The city has become an ideal destination for listing due to its well-established financial infrastructure, international standards, and geographical proximity to Mainland China – making it particularly attractive for Chinese companies looking to go public.

Why list on the Hong Kong stock exchange?

The primary benefit companies gain when listing on the Hong Kong Stock Exchange (HKEX) is access to a large pool of investors, including domestic and international institutional funds. The unique nature of the Hong Kong market also offers companies several advantages that they may not be able to get in other jurisdictions, such as:

A favourable tax environment – there is no capital gains tax or stamp duty payable on share transactions.

Low listing requirements – Companies can list with relatively small numbers of shareholders, which makes the process simpler and faster than in other markets.

 Access to mainland China – HKEX provides a gateway for Mainland Chinese investors to participate in IPOs, offering an alternative route for raising funds.

High liquidity – HKEX has one of the highest traded volumes in the world, making it an attractive market for investors and issuers alike.

How does the IPO process work in Hong Kong?

The IPO process in Hong Kong can be broken down into several stages, from pre-IPO preparation to listing and beyond.

Pre-IPO preparation – Companies must complete all necessary regulatory and legal requirements before proceeding with the listing application. This includes preparing a Prospectus and obtaining approval from the Securities and Futures Commission (SFC).

Submission of listing application – Once the company has completed its preparations, it will submit a listing application to HKEX along with relevant documents, such as a prospectus.

Review by HKEX – The exchange will review the application and documents to ensure that all requirements are met.

Market sounding – HKEX may also conduct a market-sounding process in which potential investors are asked for their views on the company and its proposed listing. This will help the exchange determine the demand for the stock.

IPO announcement – Upon approval of the listing application by HKEX, an announcement is made to inform potential investors about the offer.

Price setting – The Exchange will then set a price at which shares can be offered to investors based on market conditions and investor demand.

Trading commences – After the IPO announcement and shares have been allocated, the company receives trading commences and proceeds from the IPO.

Are there any risks associated with IPOs in Hong Kong?

Like any investment, there are risks associated with IPOs in Hong Kong. These include:

Market risk – Market conditions can be unpredictable, and share prices may fluctuate due to economic downturns or industry-specific issues.

Regulatory risk – Companies must comply with all relevant regulations, including those from the SFC, which can increase costs and add complexity to the listing process.

Reputational risk – Companies that list on the exchange may find their reputation affected if investors are unsatisfied with performance or if the company fails to meet its obligations under the listing rules.

To summarise

IPOs in Hong Kong offer some advantages for companies looking to raise funds and go public. The city is well-known for its well-established financial infrastructure, favourable tax environment and unique access to mainland China investors, making it an ideal destination for listing.

Companies must complete all necessary preparations before proceeding with the listing application process, which includes obtaining approval from HKEX and conducting a market sounding. Once approved, trading commences allowing companies to receive proceeds from the IPO issue. All in all, IPOs in Hong Kong are an excellent way for companies to expand their investor base and access new growth opportunities.

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