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On March 20, the securities regulatory authority in Hong Kong began implementing new restrictions on the number of initial public offerings (IPOs) that sponsors can manage simultaneously, according to a senior executive at a local investment bank. Under these new regulations, sponsors are limited to handling no more than five IPO projects at once.
The Securities and Futures Commission has started enforcing the guidelines outlined in a notice issued at the end of January. The notice specifies that, barring exceptional circumstances and valid reasons, sponsors involved in six or more active listing projects at the same time will be considered to lack sufficient resources to adequately fulfill their sponsorship responsibilities.
The purpose of these changes is to reduce the burden on sponsors and improve the quality of IPO documentation. Previously, sponsors had been taking on numerous projects to capitalize on the market’s rebound since last year, which strained staffing levels. The lucrative fees associated with these offerings also motivated firms to accept more work, but this surge in workload compromised the quality of the filings.
Data obtained from the regulatory authority revealed that prior to the new restrictions, some sponsor firms had extremely imbalanced staffing. At the end of last year, a single institution’s busiest sponsor was overseeing 10 projects as the lead underwriter and participating in nine others as part of the project team. Other major sponsors within the same institution were also involved in numerous projects, with most managing 11 or more simultaneously.
There have been instances where the IPO filings failed to meet quality standards. In several cases, documents did not fully explain why the applicant qualified for listing or omitted details about the development phases of key products, prompting the regulator to request additional information during review processes.
With the current shortage of qualified sponsors—exacerbated by the long training period necessary to prepare new sponsors—the new rules are likely to tighten staffing even further. This could potentially delay the listing process for some companies.
In response, some investment banks are offering higher salaries to attract experienced sponsors and are becoming more cautious about accepting new IPO mandates, occasionally declining certain opportunities altogether.
The sponsor shortage primarily results from the extended downturn in Hong Kong’s IPO market prior to last year. Since the qualification process for sponsors is lengthy, the surge in market activity has outpaced the supply of qualified professionals, leading to increased competition for skilled sponsors.
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