HKEX to raise IPO’s clawback cap to 35pc next Mon

Hong Kong Exchanges and Clearing (0388) has eased some of listing rules, including to allow maximum 35 percent of new shares on global offer to be reallocated to the retail tranche.

HKEX announced on Friday the conclusion of its consultation on optimizing initial public offering pricing and public market requirements, receiving 1,253 responses. The amended Listing Rules will take effect on August 4.

Key changes to the offering and pricing mechanism include:

• Lowered institutional allocation floor: The minimum proportion for the international placement has been reduced from the originally proposed 50 percent to 40 percent. Previously, there was no mandated minimum.
• Flexible clawback mechanism: Issuers can now choose whether to implement a clawback mechanism for the public offering tranche.
  • With Clawback: The initial public subscription portion will be set at 5 percent. The allocation ratio will then increase based on the level of oversubscription, up to a maximum of 35 percent.
  •  Without Clawback: Issuers can allocate up to 60 percent of the offering to the public subscription tranche, significantly higher than the current 50 percent cap.

But the mandatory lock-up period for cornerstone investors remains unchanged at six months.

Katherine Ng Kit-shuen, Head of Listing at HKEX, noted that the IPO pricing mechanism has remained unchanged for 27 years, while average IPO deal sizes are now five to 10 times larger than before, with nearly 90 percent coming from institutional investors, who act as price-setters during the bookbuilding process. 

Ng stated that if there aren't enough price-setters within the IPO pricing mechanism, pricing may lack accuracy, necessitating rule adjustments to ensure balanced share allocation among institutional, global, and retail investors.

Ng highlighted the increasing scale of IPOs and the imperative to maintain international competitiveness, stressing that to keep pace and align with international market standards, HKEX must continuously optimize its listing regime. The bourse expects these reforms to enhance the robustness of IPO pricing and allocation.

Ng also revealed that HKEX is collaborating with market stakeholders and regulators on further enhancements, with a consultation on boosting the overall competitiveness of the listing regime expected to launch formally in the coming months.

For the public market, a tiered threshold of 10 percent to 25 percent for public float at listing will be implemented, determined by the market capitalization of the share class at listing.

Thresholds of initial free float will also vary based on the share class.

In addition, HKEX has initiated a separate two-month consultation on the continuous public float requirement.

STAFF REPORTER