Hong Kong Relaxes “Double Dipping” Restrictions For Large IPOs

By: Carolyn Sng and Vincent Tso

The Stock Exchange of Hong Kong (HKSE) has introduced a new exemption to its “double dipping” rule for large IPOs. “Double dipping” refers to a subscription by an existing shareholder (including pre-IPO investors and cornerstone investors) or its close associate for further shares in the IPO, which is restricted by the HKSE on account of the actual or perceived preferential treatment by the issuer for its existing shareholders. This new exemption permits “double dipping” subject to certain size conditions being met, and is effective with immediate effect on 21 November 2023.

The conditions for the exemption are that:

• the offer has a total value of at least HK$1 billion;
• the allocation to existing shareholders and their associates does not exceed 30% of the total number of securities offered; and
• each director, CEO, controlling shareholder and, for PRC issuers, supervisor of the issuer confirms that the offer securities are not allocated to them or their close associates under the exemption.

In addition, existing safeguards under the “double dipping” rules will apply. In particular:

• the exemption is not available for connected clients holding on behalf of existing shareholders;
• in the case of a cornerstone investor, its cornerstone investment agreement must not contain any material terms which are more favorable than in other cornerstone investment agreements;
• the issuer, sponsor and listing overall coordinator must confirm that no preferential treatment has been or will be given to the existing shareholder or its close associates in the placing allocation;
• the existing shareholder must not (a) be interested in 5% or more of the issuer’s voting rights before listing; (b) be a core connected person or its close associate or (c) have the power to appoint directors or other special rights; and
• the public float requirements must still be fulfilled.

This move by the HKSE is intended to encourage greater participation in IPOs by investors independent of the issuer, which would strengthen the IPO price discovery process and ensure that the final offer price better reflects market sentiment.