Hong Kong IPO Market: Fading Brilliance or Future Revival?

To reclaim top position in IPO market and attract capital inflow, HKEx has introduced some new rules and policies, and considered revising some rules to facilitate the financial market activities.

1. To support the growth of specialized technology companies, a new chapter called Chapter 18C was added to the Main Board Listing Rules on 31 March 2023. This chapter aims to provide capital access for companies specializing in areas such as next-generation information technology, advanced hardware and software, advanced materials, new energy and environmental protection, and new food and agriculture technologies. The objective is to expand the avenues for funding available to relevant businesses, thereby strengthening Hong Kong’s position as a global financial centre.

2. In June 2023, a new initiative known as the HKD-RMB Dual Counter Model was introduced. Under this model, investors are now able to trade shares using offshore RMB (that is, RMB circulating outside Mainland China) on the RMB counter. This initiative improves liquidity and minimizes price disparities, thereby strengthening equity trading in Hong Kong and creating new opportunities for investors and issuers.

3. In September 2023, HKEX has proposed reforms to simplify the process (a new streamlined transfer mechanism) of transferring eligible small and medium-sized enterprises (SMEs) to the Main Board for listing. The changes would reduce requirements and costs, eliminating the need for a sponsor or prospectus. SMEs must meet Main Board qualifications, demonstrate stable financial performance, and pass tests. For initial listing, high-growth companies with significant R&D investment must meet specific expenditure and expense ratio criteria. Quarterly reporting obligations for GEM-listed companies may be removed.

In conclusion, while Hong Kong’s IPO market has been languishing compared to other regions, the government and Hong Kong Exchange have implemented various reforms and initiatives to support the capital market. The market dynamics can change over time. It is expected that these modifications will lead to increased stock connect activities, the listing of technology firms, the introduction of China concept stocks, the debut of new technology companies, and listings from global companies.