Preparing for a Hong Kong IPO: A Holistic Approach

By Wu Shun, Securities Times Reporter

Hong Kong is a global financial center with international connections. While the process of listing on the Hong Kong Stock Exchange (HKEX) may seem relatively straightforward, it does not mean that there are no challenges for mainland companies to overcome. Many mainland enterprises have encountered difficulties after listing in Hong Kong, which has put their "hard power" to the test.

Firstly, there are differences in regulatory systems between Hong Kong and the mainland. The regulatory framework in Hong Kong is more stringent and follows international standards, whereas the mainland's accounting system has certain differences. For instance, financial statements prepared according to international accounting standards or the Hong Kong Financial Reporting Standard (HKFRS) may differ from those prepared under the mainland's accounting system, requiring additional resources and efforts to ensure compliance.

Secondly, there are cultural differences. Although Chinese is an official language in Hong Kong, the usage habits of Cantonese and Traditional Chinese characters, as well as the translation of financial terminology, may cause communication difficulties for mainland enterprises. To overcome these challenges, mainland companies need to configure their personnel accordingly, recruiting staff familiar with Hong Kong culture and market environment.

Thirdly, there are liquidity and valuation issues. The investor structure in Hong Kong is dominated by institutional investors, which can lead to lower liquidity for small- and medium-sized enterprises (SMEs). This can result in slower trading activity, lower valuations, and negative impacts on the company's market image and refinancing abilities.

Lastly, there are cost issues. Many listed companies in Hong Kong have admitted that the related maintenance fees after listing are not low, especially for lawyers and accountants. This can be a significant challenge for these companies.

Although the Hong Kong market provides an internationalized financing platform and vast development space for mainland enterprises, the process of listing in Hong Kong involves regulatory differences, cultural differences, cost issues, liquidity challenges, and valuation difficulties. Enterprises must address these challenges proactively to avoid being overwhelmed by the process.

Therefore, before making a decision to list in Hong Kong, mainland enterprises should comprehensively assess their strengths and adaptability, prepare a holistic approach, weigh the pros and cons, and formulate a reasonable listing strategy that takes into account various challenges, ensuring a smooth journey to listing and achieving long-term development goals.