The latest listing reforms proposed by Hong Kong’s bourse operator would help the city attract more initial public offerings (IPOs) and improve its chances of regaining bragging rights as the world’s top venue for new share offerings, according to industry players.
Hong Kong Exchanges and Clearing (HKEX) is seeking public feedback until March 19 on its plan to substantially reduce the public float requirement and increase the proportion of new shares for subscription by institutional investors.
“Historically, Hong Kong’s public float requirement is more restrictive compared with other global exchanges such as the US,” said John Lee Chen-kwok, vice-chairman and co-head of Asia coverage at investment bank UBS in Hong Kong. “The proposed reform to lower the public float would allow listing candidates more flexibility in deciding on their share offerings, and hence, it will enhance the competitiveness of Hong Kong as a listing venue.”
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
HKEX is pulling out all the stops to attract new listings. IPO proceeds in Hong Kong surged 87 per cent year on year to US$11 billion in 2024, according to the London Stock Exchange Group. This elevated the city to fifth on the global IPO league table in December, up from 13th in June and eighth in 2023. Hong Kong was the world’s top IPO venue seven times between 2009 and 2019.
Under current rules, IPOs must offer, or float, at least 25 per cent of their total issued shares to the public at a market value of at least HK$125 million (US$16 million). Big players can apply for a waiver to lower the threshold to 15 per cent.
The requirement, put in place in 1989, aims to ensure that sufficient shares are available for trading.
Singapore’s public float ranges from 12 per cent to 25 per cent, Australia’s is set at 20 per cent and London’s is 10 per cent. Exchanges in the US have minimal dollar-value requirements: US$40 million for the New York Stock Exchange and US$45 million for the Nasdaq, according to UBS.
Under the HKEX proposal, large mainland-listed companies should float at least HK$3 billion worth of shares in Hong Kong, or 10 per cent of their outstanding capital. The public float for smaller companies would be reduced to between 5 per cent and 25 per cent, depending on their market value.
John Lee Chen-kwok, UBS vice-chairman and co-head of Asia, pictured at the UBS offices in Two IFC in Central on June 24, 2024. Photo: Jonathan Wong alt=John Lee Chen-kwok, UBS vice-chairman and co-head of Asia, pictured at the UBS offices in Two IFC in Central on June 24, 2024. Photo: Jonathan Wong>
“This rule change is particularly important to attract more mega-sized mainland-listed companies to list in Hong Kong, as they have already listed in Shanghai or Shenzhen,” Lee said. “The rule change would dismiss their concerns and attract more big mainland players to seek listings in Hong Kong.”
HKEX’s proposed changes to share allocations aim to make more shares available to institutional investors. The retail allocation cap under the clawback mechanism for a popular IPO would be lowered to 20 per cent from 50 per cent, making more shares available to institutional investors.
“The share allocation rule changes are also important as they can ensure institutional investors get more allocations in an IPO, as they are the ones to determine the price of the offerings,” Lee said. “This will encourage more international institutional investors to invest in the Hong Kong market.”
“The reform still allows retail investors to have a decent portion of the allocation. The change balances the retail and institutional participation to further the development of Hong Kong as an international financial centre.”
Local brokers, however, worry that the change would put IPOs out of the reach of the city’s retail investors.
“All stock markets will be active only if there are both large and small investors,” said Legislative Council member Robert Lee Wai-wang, who is also the CEO of financial services firm Grand Capital Holdings. “Lowering the allocation cap for retail investors may make it harder for small brokers and retail investors to subscribe to popular IPOs.”
However, the reform is needed given that participation by retail investors has been declining during the past two decades, said King Au King-lun, an executive director of the Financial Services Development Council and a veteran in the asset-management industry.
Trading by retail investors represented 53 per cent of the stock market in 1998 when the clawback system was introduced, but only 12 per cent in 2023, according to exchange data.
“Hong Kong has evolved from a local market into a leading international financial centre,” Au said. “The IPO rules need to be updated to reflect the market dynamic and attract more global institutional investors to invest in our stock market.”
The proposed change makes “the right move” because institutional investors have the resources to conduct in-depth analytical research in setting the final offer price for an IPO, he said.
“It is also a good initiative for the listed companies, because institutional investors are long-term shareholders, while retail investors tend to be short-term traders,” Au added.
Kaitlin Rogers is a writer, editor, and news junkie. She has been working in the media industry for over five years, and her work has appeared in dozens of publications.
Kaitlin graduated from Michigan State University with a bachelor's degree in journalism and political science.
