There are no specific provisions under the Listing Rules which deal with pre-IPO investments. The underlying principles governing the requirements relating to pre-IPO investments are the ones under Rule 2.03 of the Listing Rules that “the issue and marketing of securities must be conducted in a fair and orderly manner and all holders of securities must be treated fairly and equally” (Rule 2.03 Principles). The Stock Exchange of Hong Kong Limited (Stock Exchange) has issued three guidance letters (Guidance Letters): HKEx-GL29-12 (Interim Guidance on Pre-IPO Investments), HKEx-GL43-12 (Guidance on Pre-IPO Investments) and HKEx- GL44-12 (Guidance on Pre-IPO Investments in Convertible Instruments), which have consolidated the listing decisions on pre-IPO investments issued by the Stock Exchange in the past and set out the requirements for pre-IPO investments.
All acquisitions of shares from a company (Listing Applicant) or its shareholder(s) by a new or existing shareholder prior to the Listing Applicant’s listing will be treated as “pre-IPO investments” and subject to the Guidance Letters, unless (i) the shares are acquired in an exchange of shares of a predecessor in interest company or an operating subsidiary of the Listing Applicant or otherwise as part of a corporate restructuring of the Listing Applicant in connection with the listing; or (ii) the shares are awarded to directors or employees of the Listing Applicant as part of a defined share award scheme.
Timing of pre-IPO investments
It will contravene the Rule 2.03 Principles if pre-IPO investments, with prices at a deep discount to the IPO price and much more favorable terms than investors at the IPO stage, are to be completed at a time close to the hearing of the listing application. Thus, according to the Stock Exchange guidance letter HKEx-GL29-12, pre-IPO investments must be “completed” at least 28 clear days before the date of the first submission of the first listing application form (First Filing). If the pre-IPO investment was completed (i) within 28 clear days before the date of the First Filing or (ii) on or after the date of First Filing, the Stock Exchange will delay the listing day of the Listing Applicant until 120 clear days after completion of the pre-IPO investment.
“Clear days” exclude the day of the pre-IPO investment completion, the day of the submission of the listing application form and the first day of trading of securities on the Stock Exchange. Pre- IPO investments are considered “completed” when the funds for the underlying shares are irrevocably settled and received by the Listing Applicant.
Divestment rights of pre-IPO investors
The only divestment right of pre-IPO investors which may exist on or after the First Filing is the one which is only exercisable if the listing does not take place and will terminate upon listing.
Any other divestment right (e.g., put options, redemption or repurchase rights) granted by the Listing Applicant or the controlling shareholder to the pre-IPO investor or right (e.g., call options) permitting the Listing Applicant or the controlling shareholder to repurchase shares of the pre-IPO investor must be terminated before the First Filing. Divestments on or after the First Filing will lead to a 120-day delay of the listing process regardless of when the pre-IPO investment was made or whether the divestment is pursuant to a contractual right.
For pre-IPO investors who divest prior to the First Filing, as they neither disrupt the listing process nor affect the equal treatment of shareholders post listing, regardless of when the pre-IPO investment was made or whether the divestment is pursuant to a contractual right, the Stock Exchange will not impose any delay to the listing timetable of the Listing Applicant.