Everything You Need to Know About Issuing a Hong Kong Company IPO
IPO stands for Initial Public Offering. It’s when a private limited company goes public, allowing the general population to buy shares of the firm. In this article, we’ll discuss in detail what a Hong Kong Company IPO is, and how it works.
What is an IPO in Hong Kong?
In Hong Kong, the most popular type of business is a private limited company. The Private Limited Company stands as a separate legal entity and has no ownership. Rather, ‘parts’ of the company are broken into various ‘shares’, which up to 50 shareholders can buy and trade among them.
When a company grows bigger and the shareholders don’t have the funds to keep investing in it to help it reach its full potential, it can transition into a public limited company. Thus, an IPO is issued. In other words, when a company has maximized its gains through private investments and still can do more, it allows the general public to buy shares.
When a company issues an IPO, it is made available to the Stock Exchange of Hong Kong Limited. From there, interested citizens and eligible investors from the public can make an application to acquire some parts of the company’s shares.
After buying shares on the IPO, the shareholders can trade them on the secondary stock market.
What is the Process of Issuing a Hong Kong Company IPO?
Here is the general process of issuing an IPO in Hong Kong:
The Initial Decision
The decision for a company to go public is made at a board meeting. Most of the directors, shareholders, beneficiaries, and executives should at least be in line with the idea. They have to keep in account the current income, the future potential and strategies, and the risks for potential investors.
Business Advisors and the Intermediary Agency
For a company to go public is a big affair. They need to partner with business advisors, sponsors, underwriters, accountants, appraisals, an accounting firm, and an intermediary agency who will lead them through the entire process of being available in the stock market. Once they’ve selected all of them, there is an initial meeting that mostly consists of consultancy and plans for the process of turning the company public.
Creation of the Public Documents
The partners would now conduct due diligence to ensure that every needed information about the company is listed in the public documents, which the investors will refer to before investing. This includes business activities, financial situation, future growth expectations, upcoming plans, risks, any underlying legal and other issues, etc. The data must be in-depth, and tell people everything that they would probably want to know before putting their money in.
At the same stage, the accounting firm conducts a detailed audit. Additionally, a legal company does its own analysis of the firm.
Reorganization and File Making
After the due diligence, the intermediary agency (accounting firm) and the business and legal advisors give tips to reorganize the business, finances, paperwork, and other important factors to ensure it fulfils the requirements to be listed as an IPO. After that, the underwriter prepares all the files and helps the company create an application to submit to the Listing Department of the Stock Exchange.
Submission of Form A1
Finally, along with the documents that we prepared in the above steps, we submit the Form A1. If there is all the necessary data, the listing department will publish the application (on English and Chinese) on its website. If not, the application is sent back for review from the applicant’s end.
Works on the Listing Department’s End
The listing department has to do its own reviews upon receiving the application. It has to check if the business fulfils the requirements to be eligible for listing. It will also have to assess if the company is sustainable and complies with the rules and makes essential disclosures.
The first round of comments is sent back to the company within 10 days. If there are any outstanding questions, the underwriters, advisors and other intermediaries help answer the listing department. Sometimes, they may have to rekindle some documents. Finally, when this stage finishes and the application is sent back to the Hong Kong Listing department, it decides if the company will make an appearance on the stock listing.
What Happens During the Application Process of a Hong Kong Company IPO?
Between making an application and the department approving it, normally these things happen:
Analyst’s Study Report
The analyst’s study report is to garner information about the company for the investors and fund managers. This is similar but independent to the due diligence that the underwriters do to prepare the documents. The analyst’s study report is more like getting an opinion from a third party regarding how good the investment idea is.
The analyst’s study report may sometimes take place after submitting the form A1 and before the approval.
Just like its name suggests, the roadshow implies various promotional campaigns and presentations about the IPO of the company. Sales pitches, display of the unique value proposition, media presentations, earnings data, growth rate with projections, growth opportunities, etc. can all be parts of the roadshow.
The roadshow is done by the top management of the company. They are accompanied by the underwriter as they move across locations, trying to inform and entice potential investors. It can happen in various locations around Hong Kong and other major cities across Asia.
What Happens After the Hong Kong Company IPO Is Approved?
Here are the stages after the approval of the IPO:
The accumulative tendering phase is to determine the price range of the stocks. The company also invites some investors to put money in advance to buy the shares. Depending on the turnout, the final price can again be reviewed.
Placing and Public IPO
There are two types of Hong Kong Company IPO issues:
Placing Offering: The placing offering of a company is the private sales of the company shares before making it public. It is generally for big-name investors, hedge funds, firms, and other organizations that want to own large blocks of the company.
Public Offering: After the Placing Offering, the remaining part of the firm is made available to the public. The number of shares depends on the available stakes of the firm.
Pricing and IPO
Again, we have to decide on the final issue price of the shares. And after that, an IPO ceremony takes place on the Trading Hall of Exchange. This signifies that ownership of ‘company parts’ is now available to the public.
Hong Kong Company IPO issuance is a long process. However, it gives companies access to a large number of funds to maximize their potential and capabilities. To know more about IPOs, find experts who have broad knowledge on how to incorporate a company in Hong Kong. You can contact 3E Accounting if you have any inquiries about the article. You can also contact us for any kind of corporate services, including accounting, auditing, secretarial, and many more.