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HKEx GUIDANCE LETTER
HKEx-GL51-13 (February 2013) (Updated in June 2020)
Subject
Cornerstone Investment – No Direct or Indirect Benefits to
Cornerstone Investors other than Guaranteed Allocation at IPO price
Listing Rules
Main Board Rules 2.03(2) and (4), and 2.13
GEM Rules 2.06(2) and (4), and 17.56
Author
IPO Vetting Department
Important note: This letter does not override the Listing Rules and is not a substitute for advice
from qualified professional advisers. If there is any conflict or inconsistency between this letter
and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a
confidential basis for an interpretation of the Listing Rules, or this letter.
1.
Purpose
1.1
Some market participants have asked the Exchange to remind applicants that it does not
allow any direct or indirect benefits by side letter or otherwise, other than a guaranteed
allocation of shares at the IPO price, to be given to cornerstone investors to participate in
the placing tranche of a listing applicant’s share offering.
2.
Background
2.1
It is not uncommon in an IPO that a portion of IPO shares under the placing tranche are
preferentially placed to certain investors, usually referred to as “cornerstone investors”.
Cornerstone investors, usually larger institutions and well-known individuals including
asset management funds, sovereign wealth funds and Hong Kong tycoons, are introduced
to an IPO to signify that these investors have confidence in the applicant, and the
investment is worthwhile such that they are willing to take up shares at the IPO price.
These are preferential placings where the cornerstone investors are guaranteed to receive
allocation of shares irrespective of the final offer price.
2.2
Placings to cornerstone investors are generally permitted based on the following principles:
(a)
the placing must be at the IPO price and the cornerstone investor must fully pay for its
shares before dealings in the applicant’s shares on the Exchange commence; (Updated
in June 2020)
(b)
the IPO shares placed are subject to a lock-up period generally for at least six months
following the listing date;
(c)
each investor will not have any board representation in the listing applicant, and is
independent of the listing applicant, its connected persons and their respective
associates;
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(d)
details of the placing arrangement, including the identity and background of the
investors, are disclosed in the listing document; and
(e)
notwithstanding the minimum six-month lock-up period, the shares will be part of
the public float under Main Board Rule 8.08 (GEM Rule 11.23) provided the investor
is a member of the public for the purpose of Main Board Rule 8.24 (Notes 2 and 3 to
GEM Rule 11.23).
2.3
In 2012, among the 50 newly listed Main Board companies (excluding listing of
investment funds, GEM transfers, and new listings under VSA), the cornerstone placings
ranged between 6% and 66% of the total offering size of IPO shares. In 2011, the range
was between 9% and 76%. We tend to see more cornerstone placings when market
conditions are difficult.
3.
Relevant Listing Rules
3.1
Main Board Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) require the issue and
marketing of securities to be conducted in a fair and orderly manner and that all holders
of listed securities be treated fairly and equally.
3.2
Main Board Rule 2.13 (GEM Rule 17.56) requires that information contained in the
prospectus must be accurate and complete in all material respects and not be misleading
or deceptive.
4.
No Direct or Indirect Benefits to Cornerstone Investors other than Guaranteed
Allocation at IPO Price
4.1
The Exchange considers that cornerstone investors provide an impression of voluntary
commitment to an IPO by these investors and that the investment is worthwhile. They in
fact can make an IPO very successful as retail investors are incentivised to invest in the
applicant after finding out these cornerstone investors’ commitment. Preferential placings
to the cornerstone investors will not violate the fair and equal treatment under Main Board
Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) if they follow the principles set out in
paragraph 2.2 above.
4.2
Because the existence of cornerstone investors is sometimes critical to the success of an
IPO, including when market sentiment is weak, some applicants and their controlling
shareholders, sponsors or other syndicate members may be willing to offer to some
cornerstone investors direct or indirect benefits by side letter or otherwise, other than a
guaranteed allocation at IPO price.
4.3
We consider it misleading to the public if these investors receive some direct or indirect
benefits by side letter or otherwise, other than a guaranteed allocation, to take up shares
in an IPO and yet being considered cornerstone investors. Accordingly, where there is
any form of direct or indirect benefits by side letter or otherwise, other than a guaranteed
allocation, given to investors, for example, waiver of brokerage commission, a put option
from the controlling shareholder or any other person to buy back the shares after listing,
sharing of underwriting commissions, an assurance that the applicant will re-invest the
IPO proceeds in funds managed by the cornerstone investor, an agreement to allow
allocation of shares in another IPO, or any other transaction or arrangement entered into
on non-arm’s length commercial terms in connection with the acquisition of the shares,
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these investors should be reclassified as pre-IPO investors and the requirements under the
Interim Guidance on Pre-IPO Investments issued in January 2012
(http://www.hkex.com.hk/eng/rulesreg/listrules/listguid/Documents/gl29-12.pdf) apply.
Please also refer to Guidance Letters HKEx-GL43-12 and HKEx-GL44-12 for the
Exchange’s policies on pre-IPO investment.
4.4
In addition, the non-disclosure of any form of direct or indirect benefits by side letter or
otherwise, other than a guaranteed allocation, given to cornerstone investors violates the
principles under Main Board Rule 2.13 (GEM Rule 17.56). This guidance letter does not
intend to preclude the entering into of arm’s length commercial arrangements between
applicants and investors, such as when the investors are major customers and suppliers, or
formation of joint ventures for business development with such investors. These are
considered as strategic dealings and/ or arrangements with strategic investors. Details of
any commercial arrangements should however be fully disclosed in the listing document.
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