IPO cornerstone investments and placing allocation

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IPO cornerstone investments and placing allocation

5% shareholders and their close associates: now possible

Connected clients: revisited

Close associates of PRC governmental bodies: requirements relaxed

Today, the Hong Kong Stock Exchange relaxed the restrictions on connected clients of an IPO placing broker/distributor and existing shareholders making cornerstone investments or participating in the placing tranche. The conditions applicable to allocations to certain connected clients have been aligned, and existing shareholders now have greater flexibility to participate in IPOs.

The major points to note:

  • Participation as a cornerstone investor: The Exchange will no longer regard the guaranteed allocation available to cornerstone investors as a barrier to connected clients or existing shareholders applying for a Rule 10.04 or Placing Guideline consent. There is now a roadmap for connected clients who hold securities on behalf of independent investors (i.e. discretionary and non-discretionary funds) (a “Qualified Connected Client”) and shareholders holding less than 5% of an IPO applicant’s voting rights before listing or its close associates (a “5% shareholder investor”) to participate in the cornerstone tranche.
  • A 5% shareholder investor may now participate in the IPO: Subject to confirmations regarding no preferential treatment (see below), the Exchange will generally permit a 5% shareholder investor to invest in the IPO (either as a cornerstone investor or in the placing tranche) if (i) it is not a core connected person of the IPO applicant or its close associate, and (ii) it does not have any special rights, including any right to appoint directors of the IPO applicant. 
  • Confirmations of no preferential treatment are still required, but have been clarified and aligned: The Exchange has provided clarity as to the confirmations required from parties to the IPO to demonstrate that no preferential treatment has been given to Qualified Connected Clients and 5% shareholder investors in the allocation of securities. 
  • Relaxation for close associates of PRC governmental bodies which are existing shareholders: The Exchange will now generally permit close associates of PRC governmental bodies which are existing shareholders to participate as cornerstone investors or in the placing tranche without requiring confirmations as to no preferential treatment. 

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