What is the IPO process in Hong Kong?

Are you considering taking your business public in Hong Kong? Going through the IPO process can be intimidating and often overwhelming, especially if you are unfamiliar with the various regulations and requirements. With careful planning and preparation, however, a successful Initial Public Offering (IPO) can open up many new avenues for growth.

In this article, we will look at what it takes to launch an IPO in Hong Kong—from exploring listing criteria to filing relevant documents—providing a comprehensive overview of every step involved. Bust out those notebooks: it’s time to demystify the IPO process.

Overview of the IPO process in Hong Kong

Going public through an initial public offering (IPO) is a significant milestone for a company seeking to raise capital and expand its business. In Hong Kong, the IPO process is regulated by the Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange (HKEX). Before proceeding with an IPO, a company must appoint a sponsor who guides the company through the IPO process and ensures compliance with regulatory requirements.

The company then prepares its prospectus, which includes detailed information about its business, financials, and risks. The prospectus undergoes a rigorous vetting process by the HKEX and the SFC to protect investors’ interests. Upon approval, the company sets the IPO price, and investors can buy shares through public subscription or placement. The company then goes public, and its shares trade freely on the HKEX. The IPO process in Hong Kong is known to be transparent and efficient, having attracted many companies to go public in the territory in recent years.

Steps to preparing for an IPO in Hong Kong

Assuming your company is ready to pursue an IPO, the first step would be to appoint a sponsor (a person or organisation responsible for guiding the company through the entire process) and an attorney. The sponsor will help prepare the prospectus, which contains detailed information about the company that will be offered to investors. Additionally, they will be responsible for the due diligence and valuation of the company.

The second step is to prepare the prospectus, which must include information on the issuer, its business, financials, and risks. The prospectus must also adhere to specific regulatory requirements both HKEX and SFC set. It should also be written so that potential investors can understand clearly. Once the prospectus is completed, it will be submitted to HKEX and SFC for approval.

The third step is pricing the IPO. The sponsor will use various methods to determine the price, including looking at similar companies’ IPOs and considering market conditions. A roadshow may also be conducted before pricing to generate interest from potential investors. Once the price is set, the company can proceed with public subscription or placement. Finally, when all the necessary procedures are completed, the company’s shares will start trading on HKEX, which will have successfully gone public.

Requirements for listing on the Hong Kong Stock Exchange

The HKEX imposes several requirements to ensure that companies meet the necessary standards to go public. The company must have an operating history of at least three years and a track record of profitability for at least two out of these three years. Additionally, the issuer should have sufficient working capital and net tangible assets; non-compliance with this requirement could result in disqualification.

The company must also appoint an auditor and meet minimum thresholds for public float (i.e., the percentage of a company’s total issued shares held by the public). The HKEX also requires companies to adhere to listing rules regarding disclosure and corporate governance. A company must comply with these requirements to list on the exchange.

Registration and filing documents with the regulatory authorities

Once the company has met all the requirements, it is time to register with both the SFC and HKEX. The sponsor will file the relevant documents, including a prospectus and application forms. Once the registration process is completed, the shares can start trading on the exchange.

It is important to note that this process can take some time, depending on the complexity of the company’s structure and the number of documents that need to be filed. Therefore, all the necessary steps must be taken beforehand to ensure a smooth and successful IPO process.

Hiring a sponsor for underwriting the shares

Underwriting the shares is a critical task in an IPO that should not be taken lightly. The sponsor must have sufficient experience and knowledge of the industry to ensure that they can adequately guide the company through the entire process. They should also be well-versed with both HKEX and SFC requirements, as well as be able to provide valuable advice on how to set the share price and structure the IPO.

To ensure that you get a reliable sponsor, you must do your due diligence and research thoroughly. It is also wise to ask for references from other companies who have gone public with the same sponsor to get an idea of their track record.