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SCMP Reporter

Clawback mechanism for small punters will not apply in offers of $10b or more

Only jumbo initial public share offerings worth more than $10 billion will be exempt from the listing rule governing minimum allocations to retail investors, according to the Hong Kong Exchanges and Clearing.

Sources said the new rule was in response to public criticism that rules on the clawback mechanism were vague and prone to abuse by big issuers.

The regulation is expected to apply to forthcoming jumbo issues, including those by the Industrial and Commercial Bank of China and the Bank of China, which are expected to raise US$10 billion and US$8 billion, respectively.

Under the  mechanism, retail investors are automatically entitled to receive more shares from institutional buyers if the offer is highly subscribed.

Based on current regulations, companies offering their shares for the first time must allocate at least 10 per cent of the issue to retail investors initially.

This proportion of allocation goes up as the oversubscription for the issue increases, such that if an offer is oversubscribed by 100 times or more, 50 per cent of the  shares on offer must be allocated to retail investors, regardless of the amount raised.

Many giant offerings tend to apply for waivers, allowing them to allocate fewer shares to retail investors even if the issue is in big demand.

'It's inevitable for the mega offerings to grant more shares to institutional investors as they can help stabilise the share price and only they have the ability to absorb the huge tranche,' a fund manager said.

In the case of China Construction Bank Corp's $70.2 billion offering, the mainland's third-largest lender was able to secure waivers on the number of shares to be sold to retail investors.

The bank was allowed to  sell as little as 5 per cent of its float to retail investors and to allocate 20 per cent of the shares to non-institutional buyers even if the offer was 100 times oversubscribed.

Such waivers have been criticised as favouring institutional investors at the expense of retail buyers.

'A hundred times oversubscription reflects retail investors' huge interest towards the offering. On a fair basis, they should be allocated more,' said Ricky Tam, the chairman of the Hong Kong Institute of Investors.

Sources close to the stock exchange said the  move to set clear criteria on the allocations of jumbo issues was timely in the face of huge offers  in the pipeline.

Under the new guidelines, if an offer is more than $10 billion, the minimum allocation to retail investors can be as low as 5 per cent initially, 7.5 per cent if the oversubscription rate is 15 times but below 50, 10 per cent for more than 50 times but below 100, and 20 per cent beyond that.

It is understood that the stock exchange will amend the listing rules to reflect these changes.



Mega IPOs let off rule on larger retail stake