The Hong Kong Stock Exchange recently issued interim guidance on pre-IPO investments, focusing on the time by which such investments would need to be made in order to be acceptable to the Exchange.

The guidance states that the Exchange will generally require, except in very exceptional circumstances, that pre-IPO investments (where the terms are more favourable than those which will be available to investors at IPO) be completed either (a) at least 28 clear days prior to the filing date of the first A1 listing application form or (b) 180 clear days before the first trading day of the new applicant’s securities. Completion, for these purposes, means when the funds are irrevocably settled and received by the listing applicant. In calculating the clear days, the A1 filing date, the first trading day and the date of completion of the investment must be excluded.

The Exchange is encouraging potential new listing applicants to consult with the Exchange before A1 filing where there is any concern as to the treatment of pre- IPO investments. This is good news as, despite the efforts by the Exchange to clarify its approach to pre-IPO investments, this area is still one beset with uncertainty as regards other aspects covered in the Exchange’s listing decisions. The prudent approach is to get the Exchange’s confirmation on the terms and timing of any pre-IPO investment to avoid the risk of the transaction being unwound or the IPO timetable being delayed.