Who is mass-producing "low-quality" prospectuses in the Hong Kong stock market?

With the arrival of the IPO application boom in the Hong Kong stock market, concerns about the quality of listing application documents are prompting strong corrective actions from regulators.

Recently, the Chief Executive Officer of the Hong Kong Securities and Futures Commission (SFC), Ashley Alder, revealed that the SFC, in conjunction with the Hong Kong Stock Exchange, has sent letters to 13 leading sponsors, requiring them to complete a comprehensive review and submit improvement reports within three months. The content includes serious deficiencies in the preparation of certain listing documents, potential misconduct by sponsors, and significant mismanagement of their resources.

According to the Hong Kong SFC, as of December 31, 2025, the review process for 16 listing applications has been suspended.

This is a rare regulatory crackdown by the Hong Kong SFC on sponsors in recent years.

It is believed that discussions with several senior investment banking professionals practicing in Hong Kong reveal that the writing of IPO prospectuses for Hong Kong stocks is usually "outsourced" to law firms, while sponsors primarily take on coordination and underwriting functions.

With the surge in the number of IPO projects, law firms are nearing capacity limits, leading to frequent low-level errors in prospectuses.

However, industry insiders pointed out to Xinfeng that since law firms are usually designated by sponsors, the sponsors, as the primary responsible parties, cannot escape blame.

In addition to the lack of quality control, the "over-packaging" of prospectuses has also become another focus of regulatory concern.

The Hong Kong SFC also noted that some sponsors use complex professional jargon to describe the issuer's business or package certain companies as industry leaders.

With this regulatory correction, how sponsors will optimize their workflows to improve the quality of prospectuses is now under scrutiny.

Law Firms Ghostwriting

The focus of the regulatory authorities is on the quality issues of prospectuses.

The Hong Kong SFC found multiple serious deficiencies in the process of sponsors preparing listing documents and responding to regulatory comments, and that they failed to properly handle key regulatory processes during the sale phase.

Moreover, the Hong Kong SFC noted that some sponsors have serious resource issues, including excessive reliance on external professionals to execute specific tasks without adequately assessing their competence and resources. Key personnel of sponsors lack sufficient capability to supervise transaction teams and participate in the work related to the listing committee, and there is a lack of personnel with the knowledge, skills, and experience required for Hong Kong IPOs to undertake sponsorship work.

This regulatory statement accurately hits upon an open secret in the Hong Kong IPO ecosystem.

Insiders from several leading brokerage firms confirmed to Xinfeng that, in practice, the IPO prospectuses for Hong Kong stocks are mainly "ghostwritten" by law firms.

The specific operational process usually involves sponsors drafting a general investment story framework and then outsourcing the specific writing of the prospectus to law firms, while sponsors themselves take on more coordination and sales responsibilities.

This division of labor is significantly different from the model in the A-share market, where brokerage investment banking teams personally write prospectuses When the number of projects is moderate, the Hong Kong stock market's model of "sponsors building the framework and law firms filling in the flesh" can still operate efficiently; however, in the current situation of IPO project overload, the quality of prospectuses is difficult to guarantee.

Wind data shows that, based on the listing date, the top three law firms for Hong Kong stock IPO projects in 2025 are Beijing JingTian GongCheng, Beijing TongShang, and King & Wood Mallesons, with project counts of 50, 39, and 23 respectively, totaling 112 projects, which is nearly a 50% increase compared to the total number of projects for the top three in 2024.

The pressure on the capacity limits of law firms may be a significant reason for the poor quality of some project documents.

However, outsourcing is not a get-out-of-jail-free card.

The aforementioned investment banker revealed to XinFeng that law firms are usually designated by the sponsors. Therefore, as the primary responsible party, sponsors should be accountable for the quality issues of the prospectus.

A deeper issue is that the market concentration on the sponsor side is also high.

In 2025, the Hong Kong stock IPO underwriting landscape is mainly dominated by China International Capital Corporation, CITIC Securities, Huatai Financial, China Merchants International, and Morgan Stanley, with a total of 122 projects, accounting for over 50% of the market share.

Between the large project volume and limited internal manpower, how leading institutions address the quality control crisis caused by "indigestion" has become a problem to be solved.

Adjective Game

The "over-packaging" conducted by sponsoring institutions to enhance the issuer's valuation is another major ailment affecting the quality of Hong Kong stock IPO prospectuses.

The Hong Kong Securities and Futures Commission specifically pointed out that some sponsors are not clear about the issuer's business model, using complex professional jargon to describe the issuer's business, and it has also been found that some sponsors deliberately package companies with dispersed industries and minimal market share as "industry leaders."

This reminder from the regulatory authorities is not unfounded; the phenomenon of sponsors beautifying the issuer's business through conceptual grafting is not uncommon.

The most common operational method currently is "high-tech" embellishment.

Taking the stranger social networking company Soul, sponsored by CITIC Securities, as an example, its business description has changed several times throughout the listing process. From the early "social metaverse" to donning the guise of "AI + immersive social platform" during its fourth IPO attempt, Soul's user subscription fee has been redefined as "emotional value service fee."

Despite the constant renewal of concepts, the essence of Soul's business, which matches strangers based on interest graphs, has remained unchanged.

More covert packaging methods are hidden within the "blind box" of industry data.

Unlike the high transparency of A-share prospectuses that clearly list the rankings of major participants, Hong Kong stock prospectuses often have "information disclosure blind spots" regarding industry status.

Typically, in the industry status section of Hong Kong stock prospectuses, aside from disclosing the issuer itself, competitors (from second to tenth place) are often referred to as "Company A," "Company B," etc.

This information asymmetry makes it difficult for outsiders to verify the value of the rankings in real-time, leading to the increasing prevalence of "adjective games" that highlight market status through the addition of qualifying terms. For example, the revenue of "Grandpa's Farm," sponsored by China Merchants International, is expected to be 875 million yuan in 2024, which is less than half of its peer, Ying's Holdings.

However, in the prospectus, China Merchants International framed "Grandpa's Farm" with segmented terms such as "organic zero complementary food" and "complementary food oil," establishing its industry position as the number one in multiple GMV rankings.

Similarly, Tong Shifu, also sponsored by China Merchants International, limited its industry scope to "copper cultural and creative craft products," despite its total revenue being inferior to its peer, Zhu Bingren Copper.

Since there is no need to explicitly name competitors in the prospectus, this carefully crafted "number one" title can often mislead investors in the capital market, which lacks reference points.

As regulatory scrutiny of sponsors' performance capabilities deepens, this IPO operation model, which relies on law firms' "assembly line" production and utilizes information disclosure blind spots for conceptual packaging, is facing unprecedented challenges.

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