The IPO represents the process of offering the shares of a company to the public. But more than being an intricate process with many rules to follow, IPOs represent the culmination of a company life cycle, and for most investors, it represents the most important milestone.
Why go public with your company?
There are many benefits to undertaking the arduous path of going public. First and foremost is the opportunity to raise capital. IPOs bring in fresh money which can be used for further development of your company. For instance, the company could invest this money in further research and development and thus increase its competitiveness and ultimately increase its value, or it could simply pay off all its debts and start afresh.
Another advantage of going public is the opportunity to spread the word about your company, show the world what you are capable of, and impress with the quality of your products or services. This will increase the number of customers you have, and more investors will become interested in your idea.
IPOs are also used as exit strategies for the funders of the company. So if you are ready to cash in on all those sleepless nights or simply want a new project and are ready to move on, IPO is the perfect way to do it with a high potential to make you rich.
Furthermore, once a company is listed, the company has more flexibility in conducting its business activities (such as mergers and acquisitions), and has more financing channels to raise funds (such as loans, placing and rights issue, etc.) in the future. As a company’s shares become liquid after listing, investors can also more easily buy and sell the company’s stock. This is favourable to existing shareholders who can sell their shares at an opportune time to realise their investment return.
Why choose Hong Kong to go public?
You may be wondering where the best place is to go public. Our suggestion would be to look East and more specifically to look no further than Hong Kong.
Hong Kong is the best place for all types of listing: primary and secondary listing. The Stock Exchange of Hong Kong (HKEx) is also the world’s largest market in terms of market capitalisation. The city-state is also of the most important centres of business and financial activities in Asia and around the globe. With this, HKEx plays an ideal platform for enterprises to go public for raising capital. Further benefits include:
Reason 1: China’s partner of choice
Hong Kong is uniquely positioned as the key gateway between China and international markets. This provides extreme benefits, especially to international companies who are having a harder time accessing the more stringent but incredibly profitable Chinese market.
Reason 2: Access to Chinese investors
Stock Connect is an investment channel available to Hong Kong-listed companies which directly links the Shanghai Stock Exchange to the Hong Kong Stock Exchange. Under this channel, investors in each country can trade on the stock market of the other. This means that eligible investors in Mainland China can purchase eligible shares listed on the Hong Kong Stock Exchange via their own local broker, while Hong Kong and international investors will be able to purchase eligible Shanghai-listed shares through their local broker as well. To keep in mind is that all Hong Kong and international investors are allowed to trade shares listed in Shanghai. However, only Mainland institutional investors and individual investors who have RMB 500,000 in their investment and cash accounts are eligible to trade Hong Kong-listed shares.
Reason 3: Global investor base
Hong Kong has access to an extremely diverse pool of global investors, which potentially leads to a more liquid market.
Reason 4: Jumbo listing
Hong Kong accommodates IPO transactions of all sizes and can secure investor demand to price a successful transaction, including jumbo IPOs of giant companies.
Reason 5: Secondary listing
Hong Kong further attracts technology companies listed elsewhere and mainly on the NASDAQ by offering secondary listing. HKEX is furthermore extending the use of dual-class stock structures and will allow the listings of a wider array of companies with a dual-class shares structure. The HKEX easing of rules comes in response to the US Holding Foreign Companies Accountable Act passed in May 2020, according to which US-listed companies would have to certify that they are not owned or controlled by a foreign government, as well as face greater auditing measures.
Reason 6: Robust secondary market
Hong Kong possesses active secondary markets, providing a highly liquid, safe and efficient venue for refinancing and hedging activities
Reason 7: Solid corporate governance
Hong Kong’s international corporate governance requirements are among the strictest, which results in transparency, accountability and trust in Hong Kong-listed companies by international investors.
Reason 8: Framework for cornerstone investors
Hong Kong IPO’s framework allows for strategic cornerstone investors to enhance confidence and credibility, and to align long-term interests between the company and its shareholders.
Reason 9: Solid regulatory regime
Hong Kong maintains a solid regulatory regime that is consistent with prevailing international practices and allows for the free flow of capital and information.
Reason 10: Transparent process
The Hong Kong IPO application process is highly transparent, with a full listing guide published on the HKEX website and uniform standards applied to all applicants without exceptions.
Reason 11: Solid legal system
Hong Kong has a well-established legal system based on English common law which provides a strong and attractive foundation for companies to raise funds as well as confidence for investors.
If these reasons of appeal to you, and you are interested in going public in Hong Kong, do not hesitate to seek guidance from Acclime.
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