Source: Securities Times
Author: Roman
On November 21, the Hong Kong Stock Exchange published a revised guidance letter to allow the new applicant's existing shareholders (including pre-IPO investors) and underlying investors to further subscribe or purchase new shares in the IPO under certain conditions, or “dual participation”.
Existing shareholders understand it very well, such as former angel investors, VC/PE institutions that have entered the A and B rounds, etc. Fundamental investors generally refer to investors who secure the allocation of shares in the placement portion of an initial public offering. They usually agree to be subject to a number of sales bans, such as cornerstone investors.
Under this exemption, the listing applicant's existing shareholders and/or close contacts may also be undertakers or underlying investors in the initial public offering and may further subscribe to or purchase securities.
The Hong Kong Stock Exchange believes that the purpose of introducing the new exemption arrangement is to provide more flexibility for independent investors. Listed issuers get more independent investor participation during IPOs, which will help facilitate the entire IPO pricing process and bring the issue price closer to the market price.
The new exemption arrangement is effective immediately. An initial public offering can participate in a “dual participation” if it meets the following new “scale exemptions”:
1. The total sales volume is at least 1 billion yuan;
2. Allocation of shares by all existing shareholders and their close contacts (whether as underlying investors and/or contractors) as permitted by this exemption shall not exceed 30% of the total number of securities issued;
3. Each director, chief executive, controlling shareholder and supervisor (applicable to Chinese issuers only) of the listing applicant must confirm that they or their close contacts have not been assigned securities to be sold by the listing applicant under this exemption.
“HKEx has been working hard to review and improve the listing system,” said Wu Jieyi, Head of Listing at HKEx. We believe this new arrangement is beneficial to the entire bookkeeping and share allocation process, while striking a balance between facilitating market operations and protecting investors.”
In addition, HKEx will launch a new IPO settlement platform, FINI, on November 22, to modernize the public offering settlement process and drastically reduce the time from IPO pricing to the start of trading.
FINI is a new IPO settlement platform launched by the Hong Kong Stock Exchange. It is a system for different Hong Kong IPO market participants such as intermediaries, investment banks, securities banks, stock registrars and regulators to jointly process IPO subscription and settlement, improving the efficiency of IPO settlement processing.
After the launch of FINI, the time between IPO pricing and official listing was shortened from 5 business days (T+5) to 2 business days (T+2), greatly reducing the risk of IPOs related to price changes before listing, while also improving the overall operational efficiency of the market.
HKEx has also introduced a new capital prepayment model through FINI to help reduce the amount of capital locked in the event of oversubscription of new shares. The new fund prepayment model is mainly applicable to clearing house participants, such as securities banks, banks, etc., to help reduce the time for locking in funds; in the case of oversubscription, it can also reduce the amount of locked funds.
Retail investors should continue to subscribe for new shares through securities banks or banks and confirm their pre-payment arrangements. Since the IPO settlement period has been shortened from T+5 to T+2, the number of interest days required to be paid by investors who subscribe to new shares through guaranteed financing can be reduced accordingly.
After the launch of FINI, investors will be able to trade new shares faster, reducing the capital costs required to subscribe to new shares and the potential risks associated with fluctuations in IPO prices.
Editor/Somer