As Hong Kong's initial public offering (IPO) market shows signs of overheating, problems are emerging such as declining quality of new listing applications and failures to comply with issuance procedures. In response, authorities issued a warning to listing applicant corporations and sponsors to "ensure the quality of documents."
According to Chinese business outlet Caixin on the 12th, the Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Exchanges and Clearing (HKEX) recently sent letters to sponsors participating in IPOs. The three key issues flagged by the two agencies are: ▲ declining quality in the preparation of listing documents ▲ inadequate responses by sponsors and listing applicants to regulatory comments ▲ failures to comply with procedures and deadlines at the issuance stage. The report said there have been a string of cases in which listing applications were returned for these reasons.
Caixin said that as Hong Kong's IPO market has boomed this year, weak listing applications have increased as well. As of Dec. 7, there were 316 listing applications being processed by HKEX, the highest on record, and the number is estimated to reach 400 when confidential filings are included, according to the report. KPMG projected that new listings in Hong Kong would reach 100 this year, raising a total of HK$272.1 billion (about 51.5194 trillion won). That is 2.1 times higher than a year earlier, and it analyzed that Hong Kong is likely to rank No. 1 among major global exchanges in IPO proceeds.
While listing applications have surged, the quality of application documents has fallen. China Business News pointed to a shortage of investment banking (IB) talent as the cause. IBs, which act as sponsors for corporations, serve as a communication channel with regulators and draft and review listing documents. However, due to staffing shortages, it has become common for one experienced staffer to handle multiple listings simultaneously, and as new employees take on basic work, document quality and communication capability have declined. According to the report, some foreign IBs have seen their intern-to-full-time conversion rates rise from 50% to as high as 90% due to staffing shortages.
Multiple regulatory officials told Caixin that "document content is unclear and convoluted, there is excessive use of promotional language, and data is presented selectively, leading to exaggerated claims about corporations' market positions." They also mentioned issues such as inadequate replies and noncompliance with procedures during the listing application process. The regulators said, "These defects reduce review efficiency, leading to review suspensions and listing delays," adding, "For the healthy development of the capital market, we will conduct reviews of new listings swiftly but strictly."
Meanwhile, the Hong Kong IPO market is expected to remain strong next year. KPMG forecast that a total of 180 to 200 companies will list on the Hong Kong market next year, raising up to HK$350 billion (about 66.262 trillion won).