Going public is a big deal for any company looking to expand and put themselves on the map. Though there are many ways to launch an IPO and acquire investors, there is no better place to do all of this than in Hong Kong, one of the most cosmopolitan cities in the world. With favorable laws and regulations that support entrepreneurship, you can take your company to the next stage easily by launching an IPO on the Main Board of the Hong Kong Stock Exchange (HKEx).
The Main Board of the HKEx refers to an established marketplace where companies, when they are listed, can gain exposure and access to a wide range of institutional and retail investors. This is a great way for a company to raise funds to develop or finetune new solutions, products, and services, and further broaden business horizons.
Criteria for IPO Listing in Hong Kong
Before planning your IPO launch in Hong Kong, you should take note that there is a criteria that all companies will have to meet before they are considered eligible for listing. These include:
- A trading record of at least three financial years
- The management of the company remains unchanged for the past two financial years
- The ownership of the company remains unchanged for the past financial year, and;
- Satisfying one of the three below tests:
The profit test: This is how much a company earns in net revenue. Companies wishing to list on the HKEx’s Main Board must have, in the past three years, a net revenue equal or greater than HKD 50 million, of which the first two years must have had a net revenue of at least HKD 30 million. And the third year a net revenue of at least HKD 20 million. The market capitalisation of the company at the time of applying for listing should also be at least HKD 500 million.
The market capitalisation and revenue test: Your company should also have a revenue of at least HKD 500 million in the past year and have a market capitalisation of at least HKD 4 billion.
Market capitalisation/revenue/cash flow test: Finally, one of the ways you can qualify to get listed is if you have a market capitalisation of at least HKD 2 million, a revenue of at least HKD 500 million for the past financial year, alongside an operating cash flow of at least HKD 100 million within the past three years.
When your company has fulfilled these criteria, you may begin to start the Hong Kong IPO process, which consists of X stages and can take up to months for the verification of funds, documents, and final launching.
Key things to note when launching an IPO in Hong Kong
There are three main stages of any IPO process in Hong Kong, regardless of your company size, industry, and niche. These are: initial preparation, regulatory compliance, and marketing before and during the IPO launch.
Throughout these key stages, you should familiarise yourself with these elements:
Prospectus: This is a document that outlines your strategy, background, management team, mission, vision, and more – to help others understand what your business is about. It should contain all details related to the products and services you offer, as well as your financial situation with complete transparency. This prospectus can be rather lengthy, and many companies hire professional consultants to help draft it. These consultants also give presentations of the prospectus to potential investors.
Sponsor: Your sponsor for your listing application represents your company in front of the HKEx. And they ensure your prospectus is accurate and thoroughly checked. Your sponsor is usually an investment bank, and they have the knowledge to hold meetings with prospective clients. And they present your ideas to the local Hong Kong Securities and Futures Commission (SFC) as well as the Stock Exchange.
Reporting accountant: Next, you should have a licensed accountant, who will help you prepare reports of your financial information, such as gross and net revenue. All of this will be published in your prospectus for institutional and retail investors alike to see, so this step should definitely be taken seriously.
Legal advisors: Finally, you will need legal advisors that can act both on behalf of you and on behalf of your team of underwriters and sponsors. These advisors help businesses navigate the IPO landscape and ensure the prospectus sticks to using the appropriate language.
Stages of the Hong Kong IPO Process
When businesses are ready to start their IPO application, they go through three main stages:
This begins at least one year before the listing date, and it requires your company to evaluate whether or not you meet all listing requirements. You should also ensure your management team have all the qualifications and experience required for listing.
Your company should also hold a kick-off meeting where you establish milestones you want to achieve and a timeline you want to adhere to. While discussing details such as the size of your offering or the number of shares you want to distribute, and future financial visions and plans.
Simultaneously, you should ensure your company has a legal team that ensures all operations are legal and financial aspects are compliant with local laws and regulations.
While you have a solid overview of your company’s management, finances, vision, and goals, you can begin drafting your prospectus, which is also referred to as a listing document. This can be done with the help of a team of accountants, legal advisors, and more.
Then you can submit Form A1 for listing on the Main Board on the HKEx. This should be done at least 80 days before the listing date.
2. Regulatory Compliance
Once your form has been submitted, the SEHK will carry out a three-day preliminary assessment in which your application will be evaluated in terms of its completeness. If you do not have all the documents, your application may be rejected. You may resubmit your documents, but you can only do so after eight weeks.
When your application has been accepted, however, it will be reviewed. During this time, you may receive questions from the SEHK, which you must answer promptly. When all their issues and queries have been resolved, you will have a hearing date, which usually takes place about 20 days before the listing. The hearing allows the SEHK to clarify issues with you.
3. Marketing Before and During the Hong Kong IPO Launch
Finally, when your hearing has taken place and you have received final approval from the SEHK, your application will be approved. This decision will be published on the SEHK website, and you will be able to market your upcoming IPO launch with roadshows.
Marketing before and during your IPO launch is important to help you gain brand exposure and awareness. So people will be interested in buying your shares once your company goes public. Roadshows can also be used to identify and gauge investors’ interest in your shares, and subsequently, the potential demand. This can help you settle on an initial offering share price.
After the roadshows, you can register your prospectus with the Hong Kong Registrar of Companies. This lasts for three and a half days, and by the end of it, you will have determined the offering price and number of units you want to made available on the stock market.
An IPO launch is a great way for companies of certain sizes and statures to go public and expand their business horizons. When you go public, you attract the attention of new institutional and retail investors and raise capital for future developments of your products and services. If you feel intimidated or overwhelmed by the process, you should always consult with a legal or financial investor before making any next steps.