Deep Dive into Hong Kong Exchange's New IPO Pricing Rules: What It Means for All Parties
Zhitong Caijing APP has learned that, as of August 1, 2025, the Hong Kong Stock Exchange (HKEX) will publish a consultation paper on optimizing first-time public offerings (IPOs) and market regulations. This move is expected to have far-reaching impacts.
One: Adjustment of Allocation Ratio for Foundation Investors
According to HKEX's definition, the allocation ratio refers to the portion of securities issued in an IPO that foundation investors or intermediaries can participate in. The adjustment involves allocating at least 40% of the initial offering shares to foundation investors (compared to the previous recommendation of 50%). This means that at least 40% of the total outstanding shares will be allocated to foundation investors.
This change is beneficial for institutions participating in IPOs as it enhances their pricing influence. With a higher allocation ratio, institutions can better reflect market expectations and avoid price deviations. For example, previously, some institutions might have had accurate judgments about the value of new stocks but were unable to fully express their opinions due to limited allocation ratios. The new rule will improve this situation.
This change is also beneficial for individual investors participating in IPOs as it provides a clearer indication of the market's expectations and reduces price volatility risks. If the initial offering price is too high, the stock may experience a sharp decline, causing individual investors to incur losses; with institutions' guidance, the pricing process becomes more rational, reducing the risk of individual investors.
This change also affects listed companies and valuation management entities as it provides them with an opportunity to attract high-quality institutional investors. To achieve this, listed companies need to focus on showcasing their fundamentals and providing high-quality information disclosure.
Two: Adjustment of Mechanism for Allocation to Public Offerings
HKEX has introduced two new mechanisms for allocation to public offerings:
Mechanism A replaces the current allocation mechanism with a new one that sets a higher upper limit of 35% and a lower limit of 10%. This change allows institutions to better predict their share allocations based on market conditions.
Mechanism B introduces a new option, requiring issuers to pre-determine an allocation ratio for public offerings, with a minimum of 10% (and a maximum of 60%). This mechanism provides greater transparency and predictability for individual investors.
This change is beneficial for institutions participating in IPOs as it clarifies the expected share allocations, allowing them to better adjust their pricing strategies. For individual investors, this change provides more transparent information about public offerings, enabling them to make more informed investment decisions.
This change also affects listed companies and valuation management entities as it provides them with greater flexibility in setting their IPO strategies. By selecting the appropriate mechanism, issuers can better meet their financing needs and optimize their shareholder structures.
Three: Maintenance of Lock-up Period for Foundation Investors
HKEX has decided to maintain the existing six-month lock-up period for foundation investors, which is expected to stabilize market expectations and reduce the risk of short-term trading.
This change is beneficial for institutions participating in IPOs as it provides a clearer indication of their long-term investment commitments. For individual investors, this change provides a reference point for their investment decisions.
This change also affects listed companies and valuation management entities as it attracts long-term strategic investors who are committed to the company's development. The lock-up period helps stabilize the stock price during the initial listing period.
Four: Adjustment of Initial Public Offering (IPO) Pricing Rules
HKEX has adjusted the rules for IPO pricing, focusing on market structure and trading volume. The new rules aim to provide more flexibility in setting public offering quotas based on company size.
This change is beneficial for institutions participating in IPOs as it provides them with more options for investment strategies. For individual investors, this change provides more opportunities to participate in public offerings of various-sized companies, promoting market diversity and stability.