How to prepare yourself for the Hong Kong IPO market?

After a year of significant decline, the Hong Kong IPO market is set to come back from the dead. If you’re looking for a solid investment, finding yourself inside a hot IPO can make all your money dreams come true.

How to get an IPO in Hong Kong

Hong Kong IPOs function somewhat differently from those in the U.S. Mainland exchanges like the NYSE and Nasdaq require companies making an initial public offering to pay hefty fees, often ranging between $500 thousand and $1 million U.S. Dollars depending on size. The listing process alone can take well over six months to complete.

Once listed, however, investors are free to buy and sell shares as they please. The Hong Kong Stock Exchange carries an average commission fee of $19,400 US Dollars to become a public company. On top of this, businesses must pay annual listing fees – which can be as much as $65,000 US Dollars.

These costs are far less than those carried by American exchanges; nonetheless, it is still no cheap feat, and one must ensure that they’re ready for the challenge.

How to prepare for an IPO investment?

Preparedness takes multiple forms when making an IPO investment in Hong Kong. It would be wise to prepare yourself and your company financially and legally ahead of time.

Hong Kong’s stock market is highly internationalised, with over 7,000 listed companies – the fourth-highest number globally. This means that you can expect a lot of foreign (mainly Chinese) investors; hence it’s necessary to make sure your business is known on an international level before applying for an IPO listing.

A high international profile will not only attract buyers but will also save your company time and money during registration, as all documentation will be easily recognised overseas.

Factors to consider before investing in IPOs?

If you are just about ready to hit ‘apply now’, consider other factors before signing up for IPO Hong Kong listings.

The first thing would be to have some cash flow behind you so that once your shares are purchased, they can be resold at a higher price, thus earning you the return on investment you’re seeking. Lastly, you want to ensure that the company is fairly valued, which can be difficult considering Hong Kong’s lack of regulation in this area.

Choose between two main categories.

Once IPO applicants have fulfilled the requirements, they must choose between two main categories: “pre-revenue” and “non-reporting.”

Pre-revenue companies

Pre-revenue companies are still in their research and development stages, which means they haven’t yet begun to profit. Many investors may be wary of putting money into companies with no current models. However, the potential for growth within these businesses is far higher than that of firms already turning a profit.

Non-reporting companies

Non-reporting companies have already established themselves and earned revenue but haven’t gone public yet. These businesses must file with the Stock Exchange at least once annually, so if you’re looking to buy IPO shares, this will place more restrictions on when you can buy or sell your shares (as well as how many).

These restrictions generally fall somewhere between pre-revenue and non-reporting; however, they are not required to publish their financial records. Non-reporting is the most common form of IPO listing in Hong Kong, with about five times as many companies falling into this category than pre-revenue ones.

Final Word

Ensure all your T’s are crossed and I’s dotted before signing up for an IPO listing with Hong Kong. One last thing, once you’ve made it hold on tight. Odds are you’ll have some bumpy rides throughout the first few months before things smooth out, but the investment is always worth the risk. Beginner traders interested in investing in stocks or  IPOs are advised to use a reliable and reputable online broker from Saxo Bank; for more information, look at this site.

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