Scrutiny may end HK$100m offerings

A tough new stance to improve scrutiny and disclosure of initial public offerings (IPOs) may squeeze out smaller listings and smaller sponsors who do not have the money to pay hefty compliance fees, experts warned yesterday.

Joseph Lee, a partner with global law firm Jones Day Capital Markets, said Hong Kong was moving towards a regime of 'higher quality, higher standards, and larger deals' as part of a Securities and Futures Commission drive to regulate the listing market, which would inevitably raise costs and make smaller IPOs unfeasible.

'I don't know if you will see HK$100 million deals in Hong Kong in the future,' Lee said.

Patrick Rozario, director and head of risk advisory services for accounting firm BDO, said it was difficult for smaller banks and professional firms to negotiate higher fees from issuers because of intense competition for business, even though they would have to work longer to meet the tougher standards.

The SFC recently imposed a record HK$42 million fine on Taiwanese financial advisory firm Mega Capital (Asia), and revoked its licence in Hong Kong for poor due diligence when it sponsored the listing of Fujian-based sports-fabric maker Hontex International.

The markets watchdog is also strengthening its power by seeking to pass a consultation paper with the Legislative Council that would subject sponsors to heavy fines or even jail terms if they provided misleading information in the prospectus.

Jeffrey Maddox, another partner with Jones Day, expected smaller banks to leave the market. 'Some banks which don't have the resources to do the extra work will get out of the business,' he said.