HK starts new IPO ruling including stricter disclosure, penalty for sloppy underwriters

Updated: Tuesday April 1, 2014 MYT 6:48:40 AM

HK starts new IPO ruling including stricter disclosure, penalty for sloppy underwriters

HONG KONG: Companies seeking to list in Hong Kong will be subject to a stricter disclosure regime as the city’s regulators crack down on sloppy underwriters and issuers.

The new rules, starting yesterday, are part of Hong Kong’s efforts to improve the quality of initial public offerings (IPOs) and avoid fraud. One of the key aspects of the new regime is that banks may be criminally liable if a listing prospectus is found to have misled investors.

Philippe Espinasse, a former equity capital markets banker at both UBS and Nomura, said the new rules make brokers and banks more accountable, particularly the smaller ones who have tended to send prospectuses to the exchange that were in poor shape

“It just wasted everyone’s time. In this business, reputation is everything and if someone is not up to scratch, they will be named and shamed,” he added

The new rules also follow a series of scandals at mainland Chinese companies that have run into trouble after listing in Hong Kong.

Chinese textile maker Hontex International Holdings Co had its shares suspended in 2010, just three months after listing, when regulators alleged it overstated its financial position in the listing prospectus.

Authorities revoked the licence of the sponsor of the Hontex listing, Mega Capital (Asia), and slapped it with a record fine.

Hontex had its listing cancelled in September 2013

Ahead of the rule change, Hong Kong has seen an improvement in the quality of listing applications, resulting in lower rejection rates from the stock exchange operator.

Hong Kong, which stood at No. 2 in the first-quarter global rankings for IPO venues behind New York, has been tightening IPO rules to boost investor confidence in a market that has a higher than usual ratio of retail investor participation.

From April 1, listing applications will be made public as soon as companies pass an initial checklist after filing them with the exchange. Incomplete applications will be rejected and banks and issuers submitting such applications will be named publicly and face an eightweek waiting period to refile their documents.

Previously, the socalled A1 document was filed and remained private until it was vetted and approved. Sponsors could also file incomplete documents and resubmit them without facing major penalties.

The tougher regulations take effect at a time when Hong Kong has struggled to attract new offerings due to choppy equity markets and poor performance by recent listings. Just two weeks back, the city lost ecommerce giant Alibaba Group Holding Ltd’s IPO to New York. — Reuters