Hong Kong Stock Exchange Relaxes Double-Dipping Restriction

The Hong Kong Stock Exchange (HKEX) recently published a revised Guidance Letter HKEX-GL85-16 (Revised Guidance), which further relaxes the restriction on existing shareholders (and/or their close associates) and cornerstone investors of a new listing applicant from subscribing for or purchasing further securities in the listing applicant’s initial public offering (IPO).

Under the current practice, existing shareholders (including pre-IPO investors) and cornerstone investors are presumed to be given preferential treatment in the IPO allocation process by virtue of their ‘special’ status in the listing applicant. They are not allowed to subscribe for or purchase further securities in an IPO (referred to as “double dipping”) but waiver may be granted if certain conditions are met, including, for instance, a holding of less than five percent (5%), no power to appoint directors and others (the "Waiver Conditions").

The restriction is now further relaxed - the Waiver Conditions will not apply and double dipping will be permitted (i.e. existing shareholders and/or their close associates may participate in the IPO as placees or cornerstone investors; whereas cornerstone investors may subscribe for or purchase further securities as placees) if the IPO meets the new size exemption conditions, namely that:

• the offering has a total value of at least HK$1 billion;
• the allocation to all existing shareholders and their close associates (whether as cornerstone investors and/or as placees) as permitted under the exemption does not exceed 30 percent (30%) of the total number of securities offered; and
• each director, chief executive, controlling shareholder and, for PRC issuers, each supervisor of the listing applicant has confirmed that the listing applicant’s offer securities are not allocated to them or their close associates under the exemption.

This is a welcome move as it will allow for greater  participation in IPO by investors who are independent of the directors, chief executive or controlling shareholders of a new listing applicant. The Revised Guidance took immediate effect from 21 November 2023.