HKEX to tighten IPO reviews to stamp out ‘speculative’ listings
Companies with small market capitalisation, among other characteristics, will face closer scrutiny under new guidelines for IPOs
Hong Kong’s securities regulator is to step up quality control of listed companies to avoid “speculative” initial public offerings (IPOs), with the release Friday of a guidance letter on IPO vetting and suitability for listing.
Hong Kong Exchanges and Clearing Limited (HKEX) plans to undertake a more focused review when a listing applicant is identified with certain characteristics, such as a smaller market capitalisation, fund raising disproportionate to its listing expenses, or running an asset-light businesses where a majority of the assets are liquid.
Existing listed companies with the above characteristics have already been under review by the HKEX.
“To maintain the quality and reputation of the Hong Kong market, the exchange will take a proactive stance where there are questions about listing applicants’ reasons and justification for listing,” said David Graham, HKEX’s chief regulatory officer and head of listings.
The exchange has noted there have been a number of newly listed issuers’ controlling shareholders which either sold, or gradually sold down, their interests shortly after the post-listing regulatory lock-up period expired. Sometimes these sell offs were combined with changes to management and/or the nature of the listed business, the HKEX guidance letter said.
One explanation for the above phenomenon is the perceived premium attached to the listing status of such issuers rather than the development of the underlying business or assets, the letter said.
“The exchange believes that such companies will invite speculative trading activities and can lead to market manipulation, insider trading and unnecessary volatility in the market post-listing, none of which is in the interest of the investing public,” the letter said.
Graham added: “In addition, we are continuing to explore ways in which our reverse takeovers and cash company rules can be tightened post-listing.”
All markets operated by the Hong Kong Futures Exchange will be closed for business on June 9.