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Initial protection

Published on Friday, 22 Nov 2013
The radical revamp of rules governing Hong Kong stock exchange IPOs will safeguard investor interests and ensure candidates are better prepared.
Photo: Reuters
Marc Burrage
Julia Charlton

New guidelines can spur demand for jobs related to preparations for initial public offerings in Hong Kong

The most sweeping changes to impact Hong Kong’s stock exchange listing-sponsor regulations in a generation are designed not only to protect investors’ interests, but also to help practitioners involved with initial public offerings (IPOs) ensure their IPO candidates are better prepared.

Introduced on October 1 by the Hong Kong Securities and Futures Commission (SFC), tougher rules and amendments made to the IPO listing processes raise the responsibility and liability standards for “sponsors”, which includes criminal liability for mis-statements in the prospectus. The new sponsor rules apply to both banks and corporate finance advisory firms acting as sponsors in relation to work performed involving IPO listings on the stock exchange.

While investors can be more fully assured IPO candidates have undergone stricter checks, industry professionals familiar with the new regulations say organisations inclined to IPO sponsorship must ensure they have the human resources to meet compliance requirements and ensure pre-IPO work is done properly.

Julia Charlton, founder and principal partner of law firm Charltons and an experienced practitioner in the field of corporate finance, says the new regime for sponsors undoubtedly demands high standards of sponsors in the performance of work in relation to Hong Kong IPOs. “It is imperative that sponsors, including law firms and other professionals involved in Hong Kong IPOs fully understand the new requirements and conduct staff training,” she says.

Some of the key changes for sponsors, says Charlton, relate to the need to do most of the due diligence on IPO applicants at a very early stage of the process. This requires more extensive record-keeping and additional obligations for accountants and valuers.

Charlton says the professionalism of the Hong Kong sponsor industry, and the pool of highly qualified industry professionals including sponsors, accountants, lawyers, valuers and share registrars, play a crucial part in its monumental success as an international finance centre and market.

Charlton believes the new regulations should add to investor confidence, both in the quality of companies brought to market and in the quality of information they receive as the basis for investment decisions.

According to Charlton, a solid regulatory framework which is as good as, if not better than, those of other international finance centres, and a long-established legal system further underpin Hong Kong’s position among the world’s top stock markets.

She highlights the commitment of sponsors to meet high standards as evident in the collaboration of the Hong Kong sponsor industry in producing the “Hong Kong Sponsor Due Diligence Guidelines”.

“The guidelines involve over a year’s work and many thousands of hours of work provided freely by many sponsors, lawyers, accountants and others,” says Charlton, whose firm acted as the co-ordinating law firm.

While Hong Kong may have has lost its slot as the world’s number one IPO listing centre to New York, Charlton believes the new rules can serve to improve the standard of Hong Kong IPOs, which should translate into more listings, and hence more jobs.

“All professions have an interest in ensuring the quality of companies brought to market will be successful and by following the recommendations in the sponsor guidelines, weed out the companies which are not suitable for listing on the Hong Kong’s stock market,” says Charlton.

Philip Quinn, banking and finance managing consultant with Kelly Services, believes the new IPO sponsor regulations will maintain the strong demand for compliance and risk talent, but that there will also be greater demand for certain prerequisites in terms of financial qualifications.

“This is something we have already begun to see this year,” says Quinn, who cautions IPO sponsors organisations need to carefully monitor their hiring policies. “It’s all about maintaining investor confidence, so the sponsors have to take responsibility,” he says.

Although Hong Kong’s IPO market has only began to pick up in the third quarter, Marc Burrage, regional director of Hays in Hong Kong, says a revival is what everyone in the banking industry hopes for in 2014. “Many pre-IPO companies are shifting their attention to Hong Kong in expectation of a revival,” he says.

Michael Page Hong Kong and Southern China regional director Chris Aukland says that as a major Asian asset management centre, the city will continue to lure investors, offering job openings.

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