Summary of Key Points
Since 2025, the number of IPO applications in the Hong Kong stock market has surged (a total of 516 for the year, exceeding the sum of the previous four years), yet the quality of the prospectuses has significantly declined—filled with marketing rhetoric, opportunistic tactics, and attempts to exaggerate the company's position within its industry. The underlying reasons include: a boom in primary market investment in previous years, which led many companies to sign performance-based agreements (requiring them to go public by a certain deadline or face financial penalties); stricter review processes for A-share listings; and the lower barriers and shorter timeframes for Hong Kong IPOs, which have become a lifeline for these companies. After the Hong Kong Stock Exchange (HKEX) and the Securities and Futures Commission introduced new regulations (limiting prospectuses to 300 pages and removing marketing content), intermediaries began to be more selective in their clients. Some companies improved their documentation, but those without significant market presence or facing performance-based agreements continued to push forward. The ongoing "cat-and-mouse game" between regulators and these companies engaged in fraudulent practices persists.
Why Has the Number of Hong Kong IPOs Suddenly Surged?
In simple terms, it's a combination of forced circumstances and perceived benefits:
- Forced by Performance-Based Agreements: Many companies signed agreements requiring them to go public by 2025 or face significant financial consequences due to ample investment in the primary market. With stricter A-share review requirements (higher standards for profitability and industry relevance), Hong Kong became the easier option.
- Inspired by Success Stories: Companies like Moxue Bingcheng and Guming, which went public in Hong Kong in 2024-2025 and saw good valuations and liquidity, encouraged others to try. Additionally, Hong Kong's relaxed listing criteria (including allowing unprofitable tech companies to list) made it more accessible to smaller firms.
- A Dramatic Shift from Decline to Surge: From 83 applications per year between 2022-2024, the number jumped to 516 in 2025 and further increased to 373 in the first half of 2026. Intermediaries were caught off guard by the surge and had to hire more staff at significantly higher salaries due to the shortage of professionals during the peak period.
Common Practices of Manipulating Prospectuses
Prospectuses, intended to provide investors with a clear overview of the company, have been turned into promotional materials by some companies. Three common tactics include:
- Exaggerated Marketing Language: Using buzzwords like "solution providers," "end-to-end services," and "full-stack solutions" that lack practical meaning. The HKEX has explicitly stated that such marketing content is useless and should be removed as it does not contribute to investors' understanding of the company's value.
- Misleading Industry Positioning: For example, a catering company might position itself as the market leader with average prices above $120 per meal, avoiding its actual ranking in the industry to give a more impressive impression.
- Opportunistic Trend Following: Traditional manufacturing companies (e.g., those producing electric drives or bearings) claim to be "embodied intelligence" firms, while labor-intensive businesses with no real AI applications still mention how AI can reduce costs and increase efficiency. The HKEX has pointed out that such claims are irrelevant to their actual business.
- Serious Fraud: More extreme cases involve inflating revenue figures (e.g., through related-party transactions or double-sided contracts), which is not just misleading but also illegal and can lead to legal actions (as evidenced by a company being fined for fraud).
Changes in the Market After New Regulations
With the new regulations (prospectuses limited to 300 pages and no marketing content) implemented in January 2026, three noticeable trends emerged:
- Intermediaries Becoming More Selective: The new rules limit sponsors to handling a maximum of five projects at a time, so they are more cautious about taking on untrustworthy companies. For instance, industry consultant Wang Sheng politely declines projects with weak foundations, explaining that they won't make it past the preliminary review stage.
- Companies Becoming More Honest: Intermediaries now show the new regulations to companies, highlighting how non-compliant proposals will be rejected. Many companies have revised their prospectuses to fit the 300-page limit, simplifying visuals and tables.
- Persistent Challenges: Non-leading intermediaries still need to generate revenue (with overseas legal fees often in the millions), and companies under performance pressure are willing to pay high fees to meet these requirements, even if the chances of a successful listing are slim.
Will This "Cat-and-Mouse Game" End?
It won't end soon, but trends will change:
- The Boom Will Slow Down: The current surge in IPOs is a result of the investment boom in the primary market around 2020. Once these companies complete their listings, applications will likely decrease. Lawyer Qi Jingjing notes that no one knows when the trend will stop, but once these companies are absorbed by the market, things will stabilize.
- Regulatory Tightening Will Continue: The HKEX has made it clear that prospectuses must clearly explain business models and revenue recognition methods. The space for fraudulent practices will shrink, increasing the compliance costs for both intermediaries and companies.
- The Market Will Sort Out the Best: Investors are discerning; misleading marketing won't attract investment. Quality companies will receive funding, while poorly managed ones may end up with low stock prices and lack of trading activity. As Wang Sheng puts it, "It's easy to submit a proposal, but whether it can be sold is another matter."
In Conclusion
The issue of fraudulent prospectuses in Hong Kong IPOs reflects a clash of interests: companies need to fulfill their performance-based agreements, intermediaries need to make profits, and regulators must ensure market fairness. The new regulations are a temporary measure, but ultimately, only the strength of the companies will determine their success in the market. The market will naturally filter out the less valuable ones, and only truly meaningful businesses will thrive.