Hong Kong's IPO machine is racing toward record proceeds, powered largely by Chinese companies feeding the artificial intelligence supply chain. With average first-day pops near 30% and more than 100 deals showing about a 28% weighted first-day rise, demand is intense. That heat has changed the pecking order: companies are increasingly steering stock to strategic investors, suppliers, customers and other close contacts, people familiar with recent deals said. In earlier years, investment firms mostly battled one another and leaned on bank relationships to win slices.
There's no suggestion the handpicked buyers flipped shares right away, but allocations in hot books can boost gains. And the mood is cooling at the edges. More than half of the year's 10 largest Hong Kong IPOs are now below their offer prices as of Sept. 3.
The squeeze is felt in the bookbuild. Institutions are fighting over a limited pool after cornerstones soak up big chunks, often as much as half of a deal. Retail gets crowded out too. The exchange last year adopted a mechanism that ensures institutional investors receive the bulk of shares in oversubscribed offerings, leaving mom-and-pop buyers with slimmer odds.
Victory Giant Technology Huizhou Co., a printed circuit board maker, jumped 50% on day one in April after a $3 billion deal that ranks among the city's biggest this year. People with knowledge of the transaction said management took a direct role in selecting investors. More than 20% of the sale was placed with some of Nvidia Corp.'s largest shareholders because the chairman wanted the investor lineup to mirror that of its standout customer, one person said.
Other pieces went to suppliers, Chinese funds with existing relationships, and cornerstone investors who also received more in the general book, the person added. Victory Giant declined to comment. The shares now trade about 4% below the Hong Kong offer price.
At Lingyi iTech Guangdong Co., nearly 300 institutions submitted orders for its June listing, but people briefed on the outcome said more than a third received no shares. Those people said the management team closely shaped the allocations. Since listing, Lingyi has finished the session higher than its offer price just two times.
Zhongji Innolight Co., an Nvidia supplier, raised $7.8 billion in the city's largest IPO in seven years. While institutional appetite surged, just a sliver was allocated to "friends and family," and after meeting investors the company actively shaped the book to check that they grasped the business, people familiar with the matter said. Lingyi and Zhongji Innolight did not respond to requests for comment.
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Picking familiar investors isn't new. In weaker markets, they helped complete deals when big funds stayed away. In today's hot tape, people familiar with recent listings say issuers are using allocations to reward partners and customers, and in some cases to favor investors who engaged early rather than short-term buyers.
That approach can carry risks. Tom Chau, president of the Hong Kong Chartered Governance Institute, warned that micromanaging who gets a meaningful chunk of shares, particularly in smaller offerings, could result in mispricing and make IPOs vulnerable to pump-and-dump activity. "That potentially raises price-distortion and transparency issues when the capital markets of Hong Kong rely on a fair, transparent system for pricing," he said.
Undisclosed placements to friends and family could "run the risk of treating investors unfairly, falsifying demand, propping up prices and hurting market confidence and damaging minority shareholder interests in the long run."
Scrutiny is rising. People familiar with the Securities and Futures Commission's stance said the regulator has broadened its oversight of bookbuilding and share-allocation practices. At DLA Piper, George Wu leads equity capital markets for Asia Pacific and said, "One of the long-term issues people discuss about Hong Kong's market is liquidity." "But if there are so many non-genuine investors then liquidity definitely will be an issue."
Specialized issuers may also see upside in curating their holder lists. For biotechnology firms, for example, "They have a relationship, whether it's a business relationship or cooperation relationship; they can do business together," said Frank Bi, who heads the Asia corporate-transactions practice at Ashurst. He added that the company listing and its investors could exchange client contacts and insights on the market.
Who gets IPO shares shapes day-one trading, liquidity and how much stock is actually available. Bigger cornerstone slices and more company-directed allocations can limit access for everyone else, and several headline deals are already below issue. If you follow new listings, expect more hands-on selection by management and closer regulatory attention. That mix affects early pricing and how easily you can get in or out once the bell rings.
