This is particularly so when market sentiment is weak. The Exchange notes that some listing applicants, their controlling shareholders, sponsors or other syndicate members may wish to offer Cornerstone Investors additional benefits by side letter or otherwise, other than a guaranteed allocation at the IPO price. Provided that the above principles are followed, the Exchange considers that placings to Cornerstone Investors will not breach the requirement for fair and equal treatment of all shareholders. In the Guidance Letter, the Exchange states that preferential placings to Cornerstone Investors can be justified by their purpose of encouraging retail investors to invest in the IPO. Rule 2.13 (GEM Rule 17.56) requires all information in the prospectus to be accurate and complete in all material respects and not be misleading or deceptive. Under Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)), all holders of listed securities must be treated fairly and equally. In 2012, cornerstone placings in 50 newly listed Main Board companies ranged between 5% and 66% of the total offering size of IPO shares while in 2011, the range was between 9% and 76%. Notwithstanding the lock-up period, and provided that the cornerstone investor is a member of the public (as defined in the Listing Rules), the shares placed will be part of the public float under rule 8.08 of the Main Board Listing Rules ( Rules) (GEM Rule 11.23).Ĭornerstone placings are common in difficult market conditions. The cornerstone investors would not have board representation and are independent from the listing applicant, its connected persons and their respective associates) ĭetails of the cornerstone investors and the placing arrangement are included in the listing document and The IPO shares are subject to a lock-up period (usually ending at least six months from the listing date)
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Such placings are generally permitted based on the following principles: Cornerstone InvestorsĬornerstone Investors are usually large institutional investors or well-known individuals to whom shares of an IPO are allocated under the placing tranche at the IPO price to signal to the market that the IPO is a trusted investment and is worthwhile for other investors. investors who receive a preferential placement of IPO shares under the placing tranche), except for a guaranteed allocation of shares at the IPO price.
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The Exchange has published guidance letter, GL51-13 ( see archive) ( Guidance Letter), to remind listing applicants that no direct or indirect benefits are allowed to be given by side letter or otherwise to Cornerstone Investors (i.e. Hong Kong Stock Exchange Publishes Guidance Letter GL51-13 Disallowing Additional Benefits For Cornerstone Investors