Hong Kong stock market IPO reforms would attract more listings, bankers say

The latest listing reforms proposed by Hong Kong’s stock market operator would help the city attract more initial public offerings (IPOs) and improve its chances of regaining bragging rights as the world’s top venue for new IPOs. ‘actions, according to the players in the sector.

Hong Kong Exchanges and Clearing (HKEX) is seeking public comments until March 19 on its plan to substantially reduce the public float requirement and increase the proportion of new shares for subscription by institutional investors.

“Hong Kong’s public float requirement is historically more restrictive compared to other global exchanges such as the US,” said John Lee Chen-kwok, vice president and co-head of Asia coverage at investment bank UBS in Hong Kong . “The proposed reform to reduce the public float would allow listing candidates more flexibility to decide on their share offers and thus improve Hong Kong’s competitiveness as a listing venue.”

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HKEX is doing its best to attract new listings. According to the London Stock Exchange Group, IPO proceeds in Hong Kong rose 87 percent year-on-year to US$11 billion by 2024. This lifted the city to fifth place in the global league table of IPO in December, from June 13 and the eighth in 2023. Hong Kong was the world’s most important place seven times between 2009 and 2019.

Under current rules, IPOs must offer, or float, at least 25 percent of their total issued shares to the public at a market value of at least HK$125 million (US$16 million ). Large players can apply for an exemption to reduce the threshold to 15 percent.

The requirement, established in 1989, aims to ensure that there are enough shares available for trading.

Singapore’s public fleet ranges from 12% to 25%, Australia’s is set at 20% and London’s is 10%. US stock exchanges have minimum dollar value requirements: $40 million for the New York Stock Exchange and $45 million for the Nasdaq, according to UBS.

Under the HKEX proposal, large companies listed on the mainland would have to float at least HK$3 billion in shares in Hong Kong, or 10% of their outstanding capital. The public fleet for smaller companies would be reduced by 5 to 25 percent, depending on their market value.

John Lee Chen-kwok, UBS vice chairman and co-head of Asia, pictured at the UBS offices at Two IFC in Central on June 24, 2024. Photo: Jonathan Wong alt=John Lee Chen-kwok, vice chairman of UBS and co-head of Asia, pictured at the UBS offices at Two IFC in Central on June 24, 2024. Photo: Jonathan Wong>

“This rule change is particularly important to attract more large mainland companies to list in Hong Kong, as they have already listed in Shanghai or Shenzhen,” Lee said. “The rule change would dismiss their concerns and attract more big mainland players to seek listings in Hong Kong.”

HKEX’s proposed changes to share allocation are aimed at making more shares available to institutional investors. The retail allotment limit under the clawback mechanism of a popular IPO would be reduced to 20% from 50%, making more shares available to institutional investors.

“The share allocation rule changes are also important as they can ensure that institutional investors get more allocations in an IPO as they are the ones who determine the price of the offers,” said Lee. “This will encourage more international institutional investors to invest in the Hong Kong market.”

“The reform still allows retail investors to have a decent share of the allocation. The change balances retail and institutional participation to drive Hong Kong’s development as an international financial centre.”

Local brokers, however, worry the change would put IPOs out of reach for retail investors in the city.

“All stock markets will be active only if there are big and small investors,” said Legislative Council member Robert Lee Wai-wang, who is also the chief executive of financial services firm Grand Capital Holdings. “Reducing the allocation limit for retail investors may make it more difficult for small brokers and retail investors to subscribe to popular IPOs.”

However, the reform is necessary as the participation of retail investors has been declining over the past two decades, said King Au King-lun, chief executive of the Financial Services Development Council and an asset management industry veteran. .

Retail investor trading accounted for 53 percent of the stock market in 1998 when the clawback system was introduced, but only 12 percent in 2023, according to exchange data.

“Hong Kong has evolved from a local market to a leading international financial center,” Au said. “IPO rules must be updated to reflect market dynamics and attract more global institutional investors to invest in our stock market.”

The proposed change makes “the right move” because institutional investors have the resources to conduct in-depth analytical research to set the final offering price for an IPO, he said.

“It is also a good initiative for listed companies, because institutional investors are long-term shareholders, while retail investors are usually short-term traders,” Au added.

This article originally appeared on South China Morning Post (SCMP)the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, explore the SCMP application or visit the SCMPs Facebook i Twitter pages Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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