(Bloomberg) -- Hong Kong’s stock exchange is seeking to relax some requirements for initial public offerings, at a time when the city is trying to revamp its stock market after a challenging environment for Chinese shares.
Hong Kong Exchanges & Clearing Ltd. on Thursday asked the market for feedback on measures including those that would reduce the duration cornerstone investors have to hold on to their IPO shares and ease the path for companies listed in mainland China to offer shares in the city, according to a consultation paper published on Thursday.
The exchange is proposing a “staggered release,” through which half of the stock allocated to cornerstone investors would be unlocked after three months and the rest eligible to be sold after six. They have typically had to keep shares for at least six months in return for guaranteed allocation in an IPO. Reducing the lockup could make it more enticing for prospective investors to be cornerstones, particularly when markets are volatile.
HKEX is also proposing to lower the number of shares required to be issued by mainland-listed firms seeking Hong Kong listings, at a time when the Chinese territory’s dealmakers are betting on such companies to fill the 2025 share-sale pipeline.
The consultation calls for shares issued by mainland-listed firms in Hong Kong to represent at least 10% of total shares or for the companies to have an expected market value of at least HK$3 billion ($386 million) at listing. Current rules require those issuers to list at least 15% of their shares, an amount that may be too much for companies with big market capitalizations and no immediate need to raise a large amount of cash.
The consultation also touches on the clawback mechanism for retail investors in IPOs. Mom-and-pop investors can currently be allocated as much as 50% of a deal when the subscription ratio is above a certain level, and the exchange is proposing to lower that to 20% if issuers initially reserve 5% of the shares for the public.
The mechanism has long been a bane for Hong Kong’s investment bankers, who argue that it leaves them with little stock to allocate to institutional investors when IPOs are in high demand. A recent example is the $743 million IPO of China Resources Beverage Holdings Co. in October, which was subscribed 234 times by retail investors. Excluding cornerstones, institutional investors were only allocated about 209 million shares, worth roughly HK$3 billion ($386 million) at the IPO price.
The exchange, which is running the consultation through March 19, said it held preliminary discussions with bankers, investors and issuers from September to November before launching the consultation.
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