Understanding the IPO Operation Mechanism in One Article: A Complete Guide to Listing Conditions in Hong Kong and US Stocks and New Stock Investment

What is the essence of an IPO?

An IPO, or Initial Public Offering, refers to the process by which a private company issues shares to the public and transitions into a publicly listed company.

Essentially, an IPO marks an important milestone in a company’s ownership structure shifting from private to public. In the early stages, a company relies on the founders’ capital to support business development. However, once reaching a certain stage, initial financing alone is no longer sufficient for sustained growth, and external funding needs increase. At this point, the company seeks to raise capital, enhance creditworthiness, attract investors, and realize shareholder wealth through an IPO.

For investors, an IPO provides a window to invest in high-quality private enterprises. By purchasing newly listed shares, ordinary investors can participate in high-potential companies that were previously difficult to access. This is also the core reason why the IPO market has long attracted numerous investors.

Hong Kong Stock IPO: Listing Conditions and Review Path

Overview of Listing Conditions

The Hong Kong Main Board adopts a diversified set of standards, and companies need to meet any one of the following:

• Profit of at least HKD 20 million in the most recent year, or a total profit of at least HKD 30 million over the previous two years with a profit of no less than HKD 500 million at the time of listing
• Market capitalization of at least HKD 4 billion and revenue of no less than HKD 500 million in the most recent fiscal year
• Market capitalization of at least HKD 2 billion, revenue of no less than HKD 500 million in the most recent fiscal year, and a total cash inflow from operating activities of no less than HKD 100 million over the previous three fiscal years

This design allows companies at different stages of development to choose suitable listing paths flexibly.

Understanding the Listing Process

The Hong Kong IPO involves coordination across multiple stages:

Preliminary Preparation: The company appoints sponsors, accountants, legal advisors, and other intermediaries to form a project team and develop a detailed timetable.

Due Diligence and Auditing: Intermediaries conduct in-depth investigations into the company’s business, assets, equity, etc., while simultaneously performing financial audits, drafting the prospectus, and related legal documents.

Business Restructuring: The company makes necessary adjustments to internal structure and equity arrangements, optimizing corporate governance to meet listing requirements.

Regulatory Filing: The company formally submits listing application materials to the China Securities Regulatory Commission and the Hong Kong Stock Exchange, receives acceptance confirmation, discloses the prospectus on the exchange’s website, and responds to regulatory inquiries.

Roadshow and Pricing: After completing investor meetings and international roadshows, the company sets a reasonable issue price based on market feedback and conducts a public offering in Hong Kong.

Official Listing: Upon completing the issuance process, the shares are listed and traded on the Hong Kong Stock Exchange.

US Stock IPO: Differentiated Requirements of the Two Major Exchanges

The US IPO market is dominated by two main platforms: the New York Stock Exchange (NYSE) and NASDAQ, each with different listing standards.

NYSE Listing Conditions

Applicants must meet any one of the following:

• Pre-tax profits (excluding extraordinary items) totaling at least USD 100 million over the past 3 fiscal years, with at least USD 25 million in each of the last 2 years
• A global market value of at least USD 500 million, revenue of at least USD 100 million in the past 12 months, and cash inflows from operating activities totaling at least USD 100 million over the past 3 fiscal years, with at least USD 25 million in each of the last 2 years
• A global market value of at least USD 750 million, with revenue of no less than USD 75 million in the last 2 fiscal years

NASDAQ Listing Conditions

At the national market level, companies need to meet any one of the following:

• Earnings before tax of USD 1 million in the most recent full fiscal year or any two of the last three years, with stockholders’ equity of at least USD 15 million, a public float of at least USD 8 million, and at least 3 market makers
• Stockholders’ equity of at least USD 30 million, with a 2-year operating history, a public float of at least USD 18 million, and at least 3 market makers
• Listed securities with a market value of at least USD 75 million, a public float of at least USD 20 million, and at least 4 market makers
• Total assets and revenue of at least USD 75 million in the most recent full fiscal year or any two of the last three years, with a public float of at least USD 20 million and at least 4 market makers

Compared to NYSE, which has higher profit requirements suitable for mature profitable companies, NASDAQ is more inclusive of diverse indicators, attracting more innovative enterprises.

Opportunities and Challenges of Investing in New IPOs

Core Advantages of Investing in New Shares

Low-cost access to quality assets. Many high-growth companies are initially private and do not open themselves to external investment. An IPO offers ordinary investors a chance to enter at relatively low prices. IPO pricing is often a preferential price actively released by the company. Missing this window can limit subsequent upside potential.

Capturing upward cycle gains. Listed companies tend to launch IPOs during market upswings, increasing the likelihood of catching industry growth phases. Coupled with the relatively low listing price of high-quality companies, early investors can realize significant profits.

Information symmetry environment. The main channel for all investors to access company information is the prospectus. Large institutional investors do not have obvious informational advantages, creating a relatively fair competitive environment for retail investors.

Risks to be aware of when investing in new shares

Speculation and overvaluation risks. During market enthusiasm, new stocks are prone to excessive speculation, and the listing price may be far above intrinsic value. If the company’s fundamentals are weak, institutional investors may sell off heavily, and retail investors could face liquidity issues and be unable to exit timely.

Full reflection of initial pricing. Many positive factors are already priced into the IPO before listing, meaning the short-term upside after listing may be limited. Investors should adjust expectations accordingly.

Company risk exposure period. Newly listed companies need to be observed for their ability to handle market fluctuations, disclosure, and performance fulfillment, with higher uncertainty.

Rational Advice for Investing in IPOs

When facing IPO investment opportunities, investors should maintain a clear understanding: first, thoroughly research the company’s fundamentals and financial health, avoiding being misled by short-term hype; second, recognize that IPO markets are volatile, and avoid blindly chasing, instead establishing a long-term holding plan; finally, diversify investments to reduce risk exposure from individual new stocks and adjust allocations dynamically based on market conditions.

Overall, IPO investments can offer attractive returns but also carry significant risks. The key lies in whether investors have sufficient knowledge and risk awareness to balance opportunities and dangers effectively.