Understanding IPO from Zero: A Complete Guide to Hong Kong and US Stock Listing Routes, Conditions, and Investment Opportunities

What Does IPO Really Mean? Why Do Companies Choose to Go Public?

In financial news, it’s often mentioned that a company is preparing to go public, but many retail investors are not entirely clear on what IPO actually signifies. Simply put, an IPO (Initial Public Offering) is the complete process by which a private company issues shares to the public for the first time, transforming into a publicly listed company.

Why is this process so important? Because every company’s growth requires capital support. When private enterprises rely on initial founder investments to gradually expand their business, management quickly realizes that these initial funds are insufficient for further development. At this point, external financing becomes necessary, and an IPO is the most direct way to raise large-scale capital.

Through this process, private shareholders can realize or partially cash out their holdings, while millions of investors are given the opportunity to buy shares. For the company, an IPO not only provides ample fundraising capabilities but also helps in debt repayment, enhances corporate reputation, and reserves momentum for future growth.

Hong Kong Stock vs US Stock: A Comparison of Listing Thresholds in Two Major Markets

Want to list on the Hong Kong or US stock markets? The requirements differ between the two. Here is a core comparison:

Main Board IPO Requirements in Hong Kong (meeting any one condition)

Hong Kong’s profit requirements are relatively flexible. First, a company can have a net profit of at least HKD 20 million in the most recent financial year, with cumulative profits over the previous two years exceeding HKD 30 million; second, if the valuation at listing reaches HKD 4 billion and the most recent year’s revenue is at least HKD 500 million, it qualifies; third, a market capitalization of HKD 2 billion, with revenue of at least HKD 500 million in the most recent year, plus a cumulative operating cash flow of over HKD 100 million over the past three years, also meets the criteria.

NYSE (New York Stock Exchange) IPO Requirements (meeting any one condition)

US requirements are generally more stringent. Pre-tax profit must total at least $100 million over the past three fiscal years, with each of the last two years exceeding $25 million; or a global market cap of over $500 million, with revenue of at least $100 million in the past 12 months, cash flow of $100 million over three years, and each of the last two years’ cash flows exceeding $25 million; or a market cap of $750 million, with annual revenue of at least $75 million in the last two years.

NASDAQ IPO Requirements (national market tier, meeting any one condition)

NASDAQ offers more options. For example, pre-tax profit of $1 million in the most recent year or any two of the last three years, with shareholders’ equity of $15 million, a public market value of $8 million, and at least three active market makers; or shareholders’ equity of $30 million, two years of operational history, a public market value of $18 million, and at least three market makers; or a listing of securities with a market value of $75 million, a public market value of $20 million, and at least four market makers; or total assets and revenue of $75 million in any two of the last three years, with a public market value of $20 million and at least four market makers.

Complete Process Breakdown for Hong Kong IPO

Step 1: Confirm the Intermediary Team

The company needs to appoint sponsors, accountants, legal teams (covering Mainland China and Hong Kong), internal control consultants, and valuation experts.

Step 2: Due Diligence and Auditing

Intermediary agencies conduct detailed corporate investigations, develop a clear timeline, and simultaneously work on share and asset verification, financial audits, drafting the prospectus, and legal opinions.

Step 3: Business and Governance Restructuring

If necessary, the company should adjust its business structure, asset allocation, and equity structure, possibly introduce strategic investors, and improve corporate governance mechanisms.

Step 4: Submission and Regulatory Review

Submit a full set of application documents to the China Securities Regulatory Commission and the Hong Kong Stock Exchange to obtain acceptance letters. Then publish the prospectus on the exchange’s official website and refine information based on regulatory feedback.

Step 5: Roadshow and Pricing

After investor meetings, institutional roadshows, and international tours, set a reasonable price based on investor feedback, and then officially launch the public offering in Hong Kong.

Step 6: Official Listing and Trading

After the placement, the company’s shares are officially listed and traded on the Hong Kong Stock Exchange.

Complete Process of US IPO

Step 1: Hire an Investment Bank

The company signs an agreement with underwriters or an investment banking team, which guides the entire listing process.

Step 2: Submit Registration to the SEC

Work with underwriters to prepare the registration statement, including detailed financial data, business plans, use of funds, and risk disclosures.

Step 3: Conduct Investor Roadshow

Within two weeks before the IPO, management conducts nationwide tours to introduce the company to institutional and individual investors, seeking subscription commitments.

Step 4: Determine IPO Price Range

The company and underwriters negotiate a reasonable price, select the listing exchange, and formally request the SEC to declare the registration statement effective.

Step 5: Disclose Prospectus and Application

Publish the prospectus and related filings according to the planned schedule, and announce the specific IPO listing date.

Step 6: Final Pricing and Trading Launch

Once the IPO price is finalized, the company and underwriters confirm allocations to investors. On the day of allocation, the stock begins trading on the market.

The Dual Aspects of Investing in New Stock Listings

Advantages of Investing in IPOs

First, cost advantages are clear. Many high-quality companies, being private, are inaccessible to retail investors, but IPOs open the door for retail participation. IPO pricing is often offered at a discount by the company, usually the lowest price investors can buy at. Missing this price point makes subsequent gains more difficult and expensive, as stock prices may rise rapidly afterward.

Second, the potential for returns is high. Quality companies tend to launch IPOs during market upswings, increasing the likelihood of stock price appreciation. The initial low price provides a quick profit window, allowing investors to share in the company’s growth.

Third, information symmetry is relatively good. All investors receive information mainly through the publicly disclosed prospectus. Large institutional investors do not have significant informational advantages over retail investors.

Risks to Watch Out for in IPO Investment

However, investors should be cautious of potential hype and speculation. If the chosen company is not truly high-quality, large institutional investors may sell off later, and retail investors with limited liquidity may find it difficult to exit quickly, risking losses.

Additionally, many positive factors are often already reflected in the initial price before listing, which can significantly limit short-term profit opportunities and even lead to a “breakdown” (price falling below the offering price).

Advice and Risk Management for Taiwanese Investors

For Taiwanese investors, participating in Hong Kong and US IPOs requires caution. Many local investors prefer to focus on familiar domestic companies, which allows for deeper understanding of their development context. Since Taiwanese investors tend to favor low-risk strategies, they should prioritize investing in companies with solid fundamentals and proven profitability.

Before investing, conduct thorough research into the company’s fundamentals and financial health, rather than following the crowd blindly. IPO markets are generally volatile; investors should avoid chasing short-term gains and instead adopt a long-term holding mindset. Diversify investments to reduce risk, and regularly adjust portfolios based on market changes. Maintaining flexibility and prudent risk management are key to achieving more stable returns from IPO investments.

Summary

Understanding the essence of IPO—namely, a company’s transition from private to public—is crucial for investors to seize market opportunities. Hong Kong and US markets each have their unique listing conditions and processes, and investors should choose carefully based on their risk tolerance and investment goals. IPO investing indeed offers opportunities to participate in the growth of high-quality companies, but it also involves corresponding risks. Only through diligent research, rational decision-making, and effective risk management can investors hope to achieve desirable returns.