Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Regulator Issues Guidelines On IPO Cornerstone Investments.

13 March, 2013


Last month, the Hong Kong Stock Exchange (“HKEx“) issued new guidelines for cornerstone investments (the “Guidance Letter”). 

In the Guidance Letter, HKEx sets out its general policies on IPO cornerstone investments and expresses its concerns over side arrangements made between cornerstone investors and listing applicants. 

Highlights of HKEx’s policies on IPO Cornerstone Investments: 

A) Principles for Approving IPO Cornerstone Investments 

HKEx approves a preferential placing to cornerstone investors based on the following principles: 


  • Placing price is at IPO price, 
  • IPO shares are subject to lock-up (at least 6 months), 
  • Investor has no board representation, 
  • Investor is independent of listing applicant, its connected persons and their respective associates, 
  • Details of placing arrangements are disclosed in the prospectus, and 
  • IPO shares are counted as part of the public float so long as the investor is a member of the public under Hong Kong Listing Rules. 

B) Reclassification of Cornerstone Investors as Pre-IPO Investors 

 HKEx may reclassify a cornerstone investor as a pre-IPO investor  if, with respect to acquisition of IPO shares, such investor  (whether by way of side letters or otherwise):

(i) receives any direct or indirect benefit (other than a guaranteed 
allocation of IPO shares), for example: 


  • waiver of brokerage commission, 
  • put option for other person to buy back shares after listing, 
  • sharing of underwriting commissions,
  • assurance that the applicant will re-invest the IPO proceeds in funds managed by the cornerstone investor, 
  • agreement to allow allocation of shares in another IPO, or 

(ii) enters into any transaction or arrangement on non-arm’s length commercial terms. Once a cornerstone investor is reclassified as a pre-IPO investor, its investment will be subject to the rules relating to pre-IPO investments, including the restrictions on timing of funding. Except in very exceptional circumstances, it must fund either (1) at least 28 clear days before the date of the first submission of listing application, or (2) 180 clear days before listing. 

C) Disclosure of Arm’s Length Commercial Arrangements 

Any arm’s length commercial arrangement between a cornerstone investor and a listing applicant which is considered as a “strategic dealing” (e.g. cornerstone investor being a major customer, supplier or joint venture partner) is acceptable to HKEx. However, details of such arrangement must be fully disclosed in the prospectus. 

The Guidance Letter is the first guidance letter issued by HKEx on IPO cornerstone investments. It specifies the general principles that HKEx has been adopting to ensure that preferential placings to cornerstone investors will not violate the fair and equal treatment under the Hong Kong Listing Rules. It also emphasizes that the only preferential treatment for cornerstone investors acceptable to HKEx is the guaranteed allocation of IPO shares at IPO price. Any other non-arm’s length arrangement in connection with the acquisition of IPO shares may deem a “cornerstone investment” a “pre-IPO investment” to which additional rules (especially those on the timing of funding) will apply. 

To view the full Guidance Letter issued by HKEx “Guidance on Cornerstone Investment – No Direct or Indirect Benefits to Cornerstone Investors other than Guaranteed Allocation at IPO Price (GL51-13)” please click here 



For further information, please contact:

Jeanette Chan, Partner, Paul Weiss

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