The SEHK has also been keen to emphasize that aside from a guaranteed allocation, there should be no other direct or indirect benefits to cornerstone investors. In particular, the HKEx in its guidance letter of February 18 indicated that granting other direct or indirect benefits by side letter or otherwise —such as waiving brokerage commissions, granting put options to buy back shares after listing, sharing of underwriting commissions, assurances that the issuer will re-invest the IPO proceeds in funds managed by the cornerstone investor or agreements to allow allocation of shares in another IPO—will result in cornerstone investors being re-categorized as pre-IPO investors which will generally result in a significant timetable delay.
The stricter policy evidenced by the guidance note is intended to level the playing field for other IPO investors and enhance transparency of the cornerstone process by ensuring that cornerstone investments represent real demand rather than being investments that would not have been made were they not accompanied by various side-benefits not available to other investors. Some commentators have expressed concern that the new rules could hamper new listings and may in any event be difficult to enforce in practice, given the challenges of proving the existence and terms of any trade-offs behind the actual deals.
Having analysed the role and incidence of cornerstone investors in the context of Singapore, Malaysian and Hong Kong IPOs, it may be safe to conclude that insofar as equity markets remain volatile, cornerstone investors will continue to be critical to the success of IPOs. How cornerstone investors and the cornerstone process are regulated vary from jurisdiction to jurisdiction—it is not the purpose of this article to recommend any one regulatory approach over another, but merely to illustrate that a variety of approaches are possible.
Inevitably, the regulatory response in each case is influenced by the regulatory philosophy of regulators in the relevant jurisdiction and would have to be tailored to the nuances of the relevant market. Having said that, it is hoped that a comparative analysis would be helpful in furthering the debate on why and how regulators in Asia and elsewhere should look at this increasingly prevalent and important feature of IPOs. Capital Group International Inc. Where the conversion price is based on a guaranteed discount to IPO price or linked to market capitalization, this is deemed to give rise to concerns that the pre-IPO investor does not bear the same investment risk as public investors.
In these circumstances, disclosure should be made on a need-to-know basis and subject to appropriate confidentiality restraints. Similar rules on the disclosure of price sensitive information apply in Hong Kong. The foregoing is not an issue in Malaysian IPOs as cornerstone investors are approached after the listing application has been submitted to, but pending approval by, the MSC, and the listed parent would already have made the announcement on the proposed spin-off and listing of a subsidiary or business on the day of the submission of the listing application to the MSC.
The onus is on the issuer to consult and demonstrate to the SGX that these conditions have been met, in order for the six-month moratorium not to apply. Shares may be transferred from the subscription tranche to the placing tranche where there is insufficient demand in the subscription tranche to take up the initial allocation.
Oxford University Press is a department of the University of Oxford. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide. Sign In or Create an Account. Sign In. Advanced Search. Search Menu. Article Navigation. Close mobile search navigation Article Navigation. Volume 8. Article Contents 1. Assessing the role of cornerstone investors in Asian IPOs. Legal and regulatory considerations relating to cornerstone investors.
Cornerstone investors in IPOs—an Asian perspective. Oxford Academic. Google Scholar. Select Format Select format. Permissions Icon Permissions. Introduction The global equities market experienced a bull run in the years leading up to the Global Financial Crisis. Key points. Table A1 Singapore Mainboard and Catalist.
Company name. Cornerstone investors. Subscription level. Lock-up period. Gaylin Holdings Limited Nil 0 Investors means the Initial Investors and any transferee or assignee who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof.
Founders means all Members immediately prior to the consummation of the IPO. Management Investors means the officers, directors, employees and other members of the management of or consultants to any Parent, the Company or any of their respective Subsidiaries, or spouses, family members or relatives thereof, or any trust, partnership or other entity for the benefit of or the beneficial owner of which directly or indirectly is any of the foregoing, or any of their heirs, executors, successors and legal representatives, who at any date beneficially own or have the right to acquire, directly or indirectly, Capital Stock of the Company, any Restricted Subsidiary or any Parent.
Other Investors shall have the meaning set forth in the Preamble. Equity Investors means the Sponsors and the Management Stockholders. Majority Investors means, as of any date, the holders of a majority of the Investor Shares outstanding on such date.
Management Shareholders shall have the meaning set forth in the Recitals. Guidance letter GL see archive , published in by the Exchange in October of , provides guidance as to whether a pre-IPO investor may be allowed certain special rights and obligations which continue after the IPO. Price adjustment provisions, put or exit options, director nomination rights and rights to veto major corporate actions are disallowed in all cases. Other rights, such as anti-dilution rights, profit guarantees and negative pledges, may or may not be allowed depending on various circumstances.
For a full summary of guidance letter GL, please see our previous newsletter dedicated to this topic. Guidance letter GL see archive sets out guidance in relation to convertible instruments issued to pre-IPO investors. In summary, where convertible or exchangeable bonds, notes or loans CBs are issued to pre-IPO investors:. This newsletter is for information purposes only.
Disclosure of information needs to be carefully considered — there should be no disparity in the material information provided to cornerstone investors and the information available in the prospectus to other investors. Cornerstone investors may be provided with more detailed non-material information, for example access to copies of documents that are summarised in the prospectus. However, if requests include additional information not intended to be included in the prospectus, the issuer should consider whether this is material information which should be disclosed to all investors.
Following a relatively quiet first quarter in , the European IPO markets are showing signs of increased activity and we believe PE firms will continue to view public listings as an attractive option for portfolio companies.
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