BUSINESS ARTICLE

IPO Guide: How to list on the Hong Kong Stock Exchange

IPO Guide_ How to list on the Hong Kong Stock Exchange

IPO Guide: How to list on the Hong Kong Stock Exchange

boardroomsuperadmin Business Insights, Share Registry

Going public through an initial public offering (IPO) is a significant milestone for companies seeking to expand their operations and gain access to public capital markets. An IPO allows a private business to raise funds by offering shares to the public, allowing investors a chance to purchase a stake in the company. For these companies, it opens doors to new capital, improved liquidity and increased visibility in the global marketplace.

One attractive option, of course, is going listed on the Hong Kong Stock Exchange (HKEX). As one of the world’s major stock exchanges, HKEX is internationally recognised and known for its stringent profit and governance requirements, ensuring high standards for companies seeking to list and instilling confidence for investors. It offers free access to international investors and provides an ideal gateway for companies wanting to tap into the global markets.

With its robust regulatory framework and internationally recognised corporate governance standards, obtaining listing status on the HKEX signals prestige and represents satisfaction of stringent financial and corporate governance requirements which offer significant protection to shareholder interests. Given the demanding requirements imposed by HKEX on listing applicants, navigating the IPO process can be challenging. From regulatory compliance to governance requirements, listing applicants should be prepared to meet the complexities involved, including understanding the red flags, in order to make the listing process as seamless as possible.

In this article, Melvin Poon, Head of IPO Execution, Share Registry Services at BoardRoom Group Hong Kong, and Maxwell Chan, a Partner with ONC Lawyers, guide us through the IPO process in Hong Kong.

How To Get Listed: The IPO Process

The IPO process in Hong Kong involves several complex steps, each of which requires careful planning and execution. When exploring how to get listed, businesses must navigate legal, financial and compliance challenges to meet the stringent requirements of the HKEX. Read on to find out more.

Pre-IPO Preparations

The IPO process begins far before any public announcements. During this phase, the company may reorganise its internal structure and appoint professional parties to assist the process.

Maxwell says that the first step is assembling the right advisory team. The team typically includes:

  • A licensed corporate finance advisor or banker who will act as sponsor to assist the company through the listing process. The sponsor plays a crucial role in ensuring compliance with HKEX regulations.
  • The company must appoint its own lawyer or legal team to advise on compliance, rules and regulations. The team will also prepare necessary legal documents and agreements
  • A separate legal team will also be appointed to represent the sponsor, ensuring correct compliance with legal frameworks. The sponsor’s lawyer will usually prepare the prospectus, a legal offering document that outlines offer, the business, financials and risks for potential investors.

Before the listing process begins, companies often undergo a reorganisation to streamline their structure, for tax planning purpose and ensure compliance with corporate secretarial obligations. This may involve merging subsidiaries or creating new holding entities.

Thorough due diligence is required to ensure the company meets the necessary legal and financial requirements. This process involves verifying the information provided by the company, reviewing financial records, assessing potential risks and addressing any past regulatory violations or non-compliance issues. Companies must prepare audited financial statements for the track record period to provide potential investors with a clear picture of the company’s performance and profitability.

Regulatory Approval

After the internal preparations are complete, the company moves on to the regulatory vetting phase by submitting its listing application to the HKEX. The listing application must also be copied to the Securities and Futures Commission of Hong Kong (SFC). The company submits its application for vetting, along with the draft prospectus, which contains financial statements. This step requires careful attention to detail, as both HKEX and SFC will vet the company for its suitability according to the listing rules and the guidelines laid down by the HKEX.

At the time when listing application is made, companies will usually appoint independent non-executive directors to provide oversight of management and, upon successful listing, ensure compliance with listing rules and relevant governance codes, thereby enhancing corporate governance.

Throughout the vetting process, HKEX and SFC may raise queries regarding the company’s structure, finances and compliance. Timely and thorough responses are crucial to keeping the process on track.

The Public Offering

With HKEX and SFC giving green light to the listing application, the company can move forward with the public offering phase. After obtaining the in-principle approval, the company publishes the prospectus and makes it available to potential investors. The prospectus details everything from the company’s business model to the risks involved in investing.

During this phase, the bankers will go through the book building process to invite investors to subscribe for the shares. Both institutional and retail investors can subscribe to the shares on offer during the offer period. Offering results are to be published by way of an announcement.

If the public offering is oversubscribed, the company must allocate shares through a balloting process with the help of share registry provider, such as BoardRoom. New shares are subsequently allotted to investors.

Listing and Post-IPO Activities

After the initial public offering, the company officially lists its shares on the HKEX, but the responsibilities do not end there.

Given the level of scrutiny publicly listed companies face, it’s advisable to work with a trusted share registry provider, such as BoardRoom. Our share registry services comprises a full suite of offerings, including ongoing share registry management, corporate actions, AGM meeting coordination, scrutineering services, and precise tracking of shareholdings.

Compliance and Regulatory Requirements for IPOs

Compliance and Regulatory Requirements for IPOs in Hong Kong

As we have noted, to list on the HKEX, companies must meet strict regulatory and compliance standards that promote transparency and build investor trust in order for an IPO to be successful.

    Governance Structures and Board Composition
    Companies must establish strong governance frameworks with diverse boards that include at least three independent non-executive directors (INEDs), which constitute at least one-third of the board. INEDs provide oversight, ensuring shareholder interests are protected. Board diversity, in terms of gender, experience and skills, is crucial for effective governance, while ongoing board evaluations help maintain transparency. A single gender board is also considered unacceptable and there should be at least one director who should be of a different gender.
    Risk Management and Internal Controls
    HKEX requires companies to implement robust internal controls, such as policies and procedures, to manage risks, particularly in financial reporting and compliance. Effective risk management protects companies and investors. Listing applicants may be required to conduct internal control review to demonstrate the effectiveness of its internal controls.
    Sustainability Reporting
    Companies must adhere to environmental, social and governance (ESG) reporting requirements, the disclosures of which are included in the prospectus. Clear ESG disclosures demonstrate a commitment to sustainable practices, which boosts investor confidence and aligns with global standards.
    Compliance and Administrative Requirements
    HKEX classifies non-compliance as (i) material (an example could be owning a piece of land which the major production plant is located without a legal title), (ii) systemic (such as regularly failing to contribute to employee pensions) or (iii) immaterial (minor issues that do not significantly impact the company’s operations). Material or systemic issues must be rectified before the listing application can proceed, as Maxwell explains. “The general principle imposed by the HKEX is that a listed company should have no non-compliance. Systemic non-compliance particularly reflects negatively on a company’s suitability for listing as its shows poor attitude which the listing applicants and its management has towards law-abidingness.”
    Financial Eligibility and Non-Compliance Adjustments
    Non-compliant incidents can affect a company’s financials, says Maxwell, as the listing applicant may have to make provisions for the cost of rectification or to set aside the earnings arising out of or in connection with the non-compliant incidents.

    Why Partnering With An Expert Is Essential For A Successful IPO

    Navigating the complexities of an IPO on the HKEX requires extensive expertise.

    “If a company is found to be non-compliant, their application will likely be delayed until all the rectification or corrections have been done,” Maxwell explains. “If there’s a serious non-compliant incident, it may ultimately lead to the rejection of the application.”

    A key aspect of maintaining compliance is ensuring accurate and up-to-date shareholder records. Effective management of shareholder communications, such as organising meetings and distributing dividends, relies on precise record-keeping, which is why partnering with an expert share registrar is critical.

    Melvin explains the BoardRoom approach: “For the post-IPO stage, we’ll ensure updated and accurate records of the ownership and the shareholdings, which is essential for communications, holding shareholder meetings and distributing dividends.”

    BoardRoom offers a comprehensive range of services that streamline the IPO process, from corporate secretarial services to share registry services. By centralising these critical functions with one service provider, companies benefit from a seamless process that reduces risks and enhances the likelihood of a successful public offering.

    “We work with professional parties like a lawyer and sponsor who will review the post-status or other legal documents,” adds Melvin. “During the public offering stage, we’ll gather all the applications, perform balloting and allotment of shares, and deliver the share certificates to the shareholders.”

    By leveraging the combined expertise of BoardRoom, ONC Lawyers and other professionals including auditors, valuers, compliance officers and reporting accountants, companies can ensure that their IPO process is not only efficient but also fully compliant with all regulatory requirements, safeguarding their path to a successful listing on HKEX.

    The Importance Of Expert Guidance For A Successful IPO

    Navigating the IPO process on the HKEX requires meticulous preparation, strict adherence to regulatory requirements and expert guidance. BoardRoom’s expertise in share registry services provides businesses with a comprehensive solution for all share administration needs, both pre- and post-IPO.

    If your company is exploring how to list or preparing for an IPO, and requires specialised share registry services, BoardRoom can help. Contact us today.

    This article was produced in collaboration with ONC Lawyers.

    Contact BoardRoom for more information:

    Melvin Poon

    Head of IPO Execution, Share Registry Services

    E: [email protected]

    T: +852 2153 1688

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