Hong Kong Stock Exchange IPO Rules to Undergo Major Reforms: Valuation Thresholds Lowered, Confidential Submission Mechanism Fully Liberalized

[Global Times Finance and Economics Comprehensive Report] On March 13, the Hong Kong Exchanges and Clearing Limited (HKEX) released a consultation document seeking market opinions on proposals to enhance the competitiveness of the Hong Kong stock listing mechanism. The reform suggestions cover optimizing different voting rights (WVR) listing rules, facilitating overseas issuers to list in Hong Kong, and expanding the scope of IPO confidentiality applications. The consultation period will end on May 8.

Image source: Screenshot of HKEX announcement

HKEX Listing Director Wu Jiexuan stated that the initial intention of this reform is to meet investors’ desire to access more high-quality innovative investment opportunities while ensuring the trust and confidence in the listing mechanism. The proposed reforms aim to create a more diverse and dynamic market environment, using more efficient mechanisms to meet the dual needs of investors and issuers.

Regarding the highly关注ed different voting rights structures, HKEX proposes significantly lowering the listing market cap thresholds. Specifically, the standard A class market cap threshold is proposed to be reduced from HKD 40 billion to HKD 20 billion; the B class standard from HKD 10 billion to HKD 6 billion, with revenue thresholds also lowered from HKD 1 billion to HKD 600 million. Along with lowering the thresholds, HKEX also suggests that applicants with a market cap of HKD 40 billion at listing be allowed to have a voting rights ratio of up to 20:1.

In response to concerns that lowering thresholds might compromise the quality of listed companies, Wu Jiexuan emphasized that the adjusted market cap thresholds remain above the average level of companies listed on the Main Board of Hong Kong stocks. The reform is not about lowering quality standards but about attracting more diverse types of companies while ensuring market quality. Regarding the protection of small and medium investors’ rights, regulatory experience shows that existing companies with different voting rights fully comply with additional investor protection requirements, with no evidence of harm to ordinary shareholders’ interests.

Additionally, HKEX proposes to optimize the criteria for “innovative industry companies.” The revision will provide a listing pathway for issuers with innovative business models beyond pure technological innovation. All qualifying biotech and specialized tech companies will be automatically regarded as “innovative industry companies.” Wu Jiexuan explained that this move aims to provide clearer guidance to the market. For companies with innovative business models, HKEX will introduce more objective and quantifiable standards to reduce subjective judgment.

Regarding the IPO application process, HKEX proposes major improvements by expanding the scope of confidential submissions from specific categories of issuers to all new applicants. Wu Jiexuan said this aims to ensure equal benefits for all IPO companies and to align with the listing systems of major international exchanges. In response to concerns about document quality, HKEX also recommends strengthening the rejection mechanism: if an application is rejected, all participating professional institutions involved in preparing the documents will be disclosed to encourage intermediaries to ensure disclosure quality. Li Wanyu, Senior Vice President of Listing Policy and Secretariat Services at HKEX, added, “Confidential submission” does not sacrifice transparency. Applicants will still need to disclose their information early after hearings to allow investors to evaluate and analyze.

Industry experts believe that HKEX’s consultation document is an important move to enhance market attractiveness. Lowering the market cap thresholds for different voting rights and broadening the definition of “innovation” will help Hong Kong’s market break valuation constraints on emerging companies, attracting more high-growth, high-quality enterprises that have not yet reached previous large market cap requirements, especially those relying on business model innovation to break through in the new economy. Furthermore, fully opening the confidential submission mechanism and aligning with international standards reduces the institutional costs for issuers to list in Hong Kong, protecting corporate trade secrets during the listing process and providing more flexible timing options. (Wen Xin)