HK IPO Subscriptions
Company listing, also known as initial public offering (IPO), refers to a company’s initial offering of shares to the public at an issue price within a preset range for fund raising. “IPO subscription” means that investors participate in the subscription of IPO shares and have the opportunity to buy stocks on the day of listing at the finalized issue price.
To go public on Hong Kong Main Board, a company shall submit an application to the HKEX. An IPO includes international placement and public offering. International placement refers to direct sale to professional investors (Generally, institutional investors or large individual investors), including cornerstone investors and anchor investors. Shares placed to cornerstone investors are subjected to a lockup period of half a year. According to the relevant listing regulations, international placement accounts for up to 90% of the entire issuance and the remaining is for public offering to retail investors. In addition, there is a clawback mechanism. The proportion of public offering will be increased in case of over-subscription by public offering. The public offering can account for up to 50% of the total issuance, to ensure that retail investors have sufficient opportunities to participate.
The allocation mechanism for the public offering of Hong Kong stocks is based on a tiered system, which tends to be the Generalized System of Preferences such that each participate is able to allocate at least one lot. However, popular new stocks will attract too many investors, resulting in a lower allocation rate. The allocation results will be disclosed on HKEX website.
Hong Kong stocks are different from A shares. There is no market value requirement to investor’s account. You may participate into IPO subscription as long as there is sufficient cash in your securities account.
High Allocation Rate
IPO subscriptions of Hong Kong stocks are biased towards small and medium-sized investors. When subscribing to the same new stock, the company will allocate each investor for one lot as far as possible. In the past two years, the average ballot winning rate for one lot in Hong Kong IPO subscriptions has been above 50%.
Leveraged Financing Subscription
To increase the ballot winning rate and the number of winning lots in Hong Kong IPO subscription, investors may use leveraged financing subscriptions, which refers to use margin loan from broker to subscribe lots. Financing subscription has higher handling fee plus financing interest.