Most Read Contributor in Hong Kong, September 2016
Keywords: cornerstone investors, Hong Kong
It is not uncommon for Hong Kong IPOs, especially in difficult
market conditions, to invite cornerstone investors such as
well-known institutions, sovereign wealth funds and celebrities to
subscribe for shares under the placing tranche so as to enhance
popularity and investors' confidence. The major benefit
available to cornerstone investors is preferential placings - a
guarantee that such investors will receive an allocation of shares
regardless of the final offer price.
Although sometimes the existence of cornerstone investors can
make an IPO very successful, or can be material to the success of
an IPO, Hong Kong Exchanges and Clearing Limited (HKEx) does not
agree that additional benefits besides preferential placings should
be granted to such investors in view of the "fair and
equal" principle under the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited. To clarify
its position, HKEx published Guidance Letter "HKEx-GL51-13" on 22 February
2013 to remind listing applicants that:
Preferential placings at the final IPO price to cornerstone
investors are acceptable, but granting other direct or indirect
benefits (by side letters or otherwise) - such as waiving brokerage
commissions, granting put options, investing the IPO proceeds in
funds managed by the cornerstone investors, or entering into any
other agreements not on arm's length commercial terms - in
relation to the shares acquisition will result in such cornerstone
investors being recategorised as pre-IPO investors and subject to
the corresponding requirements. Please refer to our previous Legal
Updates, "Hong Kong Stock Exchange Issues Guidance on Pre-IPO
Investments", and "Pre-IPO Investments: The Dos and Don'ts" for
details of pre-IPO investment requirements.
Entering into arm's length commercial arrangements to
provide benefits to strategic investors, such as major customers
and suppliers, is acceptable, but details of such arrangements
require full disclosure in the listing documents.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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