Bankers protest tough IPO rules

Warn that proposed rules could choke-off investment into Hong Kong.

Investment bankers said the new rules regulating initial public offerings will increase the cost of listing and lead some candidates to turn to other markets such as rival Singapore.

One banker noted that the consequences of the new rules might be much more serious than the regulators had thought. He said the rules will increase the cost of due diligence while big banks might avoid smaller-scale IPOs altogether.

Particularly galling for bankers is the proposal by the Securities and Futures Commission to hold IPO sponsors civilly and criminally liable for any untrue statements in prospectuses.

IPO sponsors will now be subject to existing laws on criminally liability if they “knowingly or recklessly” approve a prospectus containing an untrue statement (including an omission) that was materially adverse from an investor’s perspective, SFC said.

That means individual bankers could face imprisonment of up to three years and a fine of as much as HK$700,000 (US$89,974).

 SFC CEO Ashley Alder said the changes, along with a streamlined regulatory process, will incentivise sponsors to raise standards, pick the right deals and manage them well, which should, in turn, reduce risks for investors and all those involved in IPOs.

“Although we are now experiencing lower IPO volumes, these reforms will underpin market confidence during all market cycles.”

He claims the proposals will be beneficial for a healthy and quality market that will enhance, rather than hamper, Hong Kong’s attractiveness as a premier listing venue.

Bankers disagree with him, however. Big banks are considering outsourcing the role of sponsors to specialist corporate finance advisers in order to lower the potential risks they face.

Outsourcing the sponsor work could minimise the risk faced by bankers and enable them to still keep the underwriting fee. It can be a solution, said one banker.

The new requirements will apply to listing applications submitted on or after October 1 2013.