HKEX

The Hong Kong Stock Exchange (HKEX) has introduced significant reforms to its IPO pricing mechanism, which came into effect on Monday. The pricing mechanism of the new share market in Hong Kong has remained unchanged for more than 20 years, according to the Securities Times.

Market observers said that the new rules will establish a more flexible, clear, and transparent framework, which will further attract international issuers and investors, and strengthen Hong Kong's competitiveness as a global financial center.

The reforms focus on several key areas, including optimizing the allocation ratio for share placements, lowering the public float threshold, and facilitating issuers with dual listings on the A-share and H-share markets (A+H issuers), according to the conclusions of the HKEX's consultation paper on proposals to optimize IPO price discovery and open market requirements published on Friday.

Katherine Ng, head of listing at the HKEX, said that as one of the world's most dynamic IPO fundraising centers, Hong Kong's market has welcomed an increasingly diverse set of issuers over the past two decades. New listings have grown substantially in both total deal sizes and in the breadth and the international composition of investors. 

"It is therefore crucial that we continue to evolve our listing framework so that it remains globally competitive and fit for purpose, ensuring that we benchmark ourselves favorably against international standards to appeal to the world's next generation of leading companies," said Ng, in remarks published on the HKEX's website.

Regarding IPO offering and pricing mechanisms, at least 40 percent of the shares in a Hong Kong IPO should be allocated to the bookbuilding placing tranche in each IPO rather than the 50 percent proposed under the new rules, while the six-month lock-up period for cornerstone investors remains unchanged, said the HKEX.

In terms of the allocation to the public subscription tranche, the HKEX's new rules allow issuers to choose between Mechanism A and Mechanism B. Under both mechanisms, the maximum allocation to the public subscription tranche has been increased.

According to the conclusions published by the HKEX, under Mechanism A, the maximum clawback allocated to the public subscription has been increased from the originally proposed 20 percent to 35 percent.

Under Mechanism B, the maximum allocation to the public subscription tranche has been increased from the originally proposed 50 percent to 60 percent.

The new rules also benefit A+H issuers - companies with dual A-share and H-share listings.

The initial free float percentage threshold for A+H issuers has been modified to 5 percent of the total number of A+H shares from 10 percent of the total number of H shares in the original proposal, according to HKEX.

Since the beginning of the year, an increasing number of A-share listed companies - ranging from consumer brands to technology firms - have sought dual listings on the Hong Kong stock market. 

The HKEX has fueled this momentum with policy incentives. For example, in May, the exchange launched a dedicated channel to facilitate IPO applications from technology companies. 

For these companies, listing in Hong Kong supports their global expansion strategies. As a leading international financial center, Hong Kong draws investors from around the world. The dual-listing approach broadens their capital-raising channels and enhances brand recognition, strengthening their global presence, Yang Delong, chief economist of the Shenzhen-based First Seafront Fund, told the Global Times on Monday.

Hong Kong's IPO market ranked in the world's top four with $88.0 billion raised from 71 new listings in 2024, according to a report by the HKEX.

Global Times