HKEX to tighten IPO reviews to stamp out ‘speculative’ listings

Hong Kong’s securities regulator is to step up quality control of listed companies to avoid “speculative” initial public offerings (IPOs), with the release Friday of a guidance letter on IPO vetting and suitability for listing.

Hong Kong Exchanges and Clearing Limited (HKEX) plans to undertake a more focused review when a listing applicant is identified with certain characteristics, such as a smaller market capitalisation, fund raising disproportionate to its listing expenses, or running an asset-light businesses where a majority of the assets are liquid.

Existing listed companies with the above characteristics have already been under review by the HKEX.

“To maintain the quality and reputation of the Hong Kong market, the exchange will take a proactive stance where there are questions about listing applicants’ reasons and justification for listing,” said David Graham, HKEX’s chief regulatory officer and head of listings.

The exchange has noted there have been a number of newly listed issuers’ controlling shareholders which either sold, or gradually sold down, their interests shortly after the post-listing regulatory lock-up period expired. Sometimes these sell offs were combined with changes to management and/or the nature of the listed business, the HKEX guidance letter said.