IPO Process Unveiled: A Comprehensive Guide for Companies Going Public

A company’s listing marks a major milestone, signifying its transition from a private enterprise to entering the public market. An Initial Public Offering (IPO) not only allows a company to raise funds for growth, but also elevates its brand recognition. However, the listing process is complex and time-consuming, requiring expertise across various professional fields and strict regulatory compliance. This guide will break down the entire listing process, the requirements, potential risks, and opportunities in detail.

What Is an IPO? The Core Concept of Corporate Listing

An IPO, or Initial Public Offering, is when a private company offers shares to public investors for the first time and becomes officially listed and tradable on a stock exchange. By going public, a company can sell part of its equity to the public, raising significant capital for operations and expansion, while providing greater liquidity for existing shareholders.

Once listed, the company becomes a public entity and must meet stricter information disclosure and regulatory standards. This means the business’s financials, strategies, major decisions, and more must be reported regularly to the public and regulators, increasing operational transparency.

For individual investors, IPOs offer a chance to invest in a company during its early growth phase. Compared to long-established companies trading for years, newly listed firms may promise higher growth potential, though with higher investment risk.

The Three Major Stages of Listing in Hong Kong

As an international financial center, Hong Kong provides a mature listing platform for mainland Chinese and overseas companies. The listing process in Hong Kong has three core phases: the preparation stage, the approval stage, and the offering stage. The complete process usually takes about 13 months, depending on how well-prepared a company is and the completeness of its application documents.

Preparation Stage: Laying the Foundation for Listing

The preparation stage is the starting point and typically takes 3 to 6 months. At this stage, the company must complete several crucial tasks to lay a solid foundation for the subsequent approval process.

First, the company needs to form a professional intermediary team, including a sponsor (usually an investment bank), law firms, accounting firms, and valuers. The sponsor coordinates the entire listing process, helps prepare application documents, and responds to regulatory questions. The accounting firm will conduct a comprehensive financial due diligence to verify the company’s revenue recognition methods, the appropriateness of cost allocations, and the authenticity of expense records.

Due diligence is the core task in the preparation stage. The professional team will thoroughly examine all dimensions of the company: business model, financial condition, legal compliance, management team’s background, and the competitive industry landscape, ensuring complete accuracy in application documents. This process also helps spot potential issues early and allows for corrective actions.

Some companies, especially mainland enterprises operating in sectors with foreign investment restrictions, may also need to reorganize their structure. Typical practices include using offshore holding companies to own domestic business entities or adopting VIE (Variable Interest Entity) structures to exercise control through contractual agreements, thus complying with listing requirements and regulatory rules.

Approval Stage: Securing Regulatory Clearance

The approval stage generally takes 3 to 5 months and is the key phase that determines whether the company can successfully list. Here, the company submits its formal listing application to the Hong Kong Stock Exchange (HKEX) and undergoes thorough review.

After submission, the HKEX Listing Department reviews the documents in detail and issues written inquiries to the sponsor and company to request supplementary information or clarification regarding financial data, business model, risk disclosures, etc. The sponsor must respond to each round of questions within five business days.

This approval process may involve several cycles of Q&A. By regulatory requirements, the application is expected to be submitted for a hearing before the Listing Committee within 40 working days from submission. The hearing is the final review—only then does the Listing Committee decide whether the company has met all listing criteria and whether to approve the application.

During approval, the company must ensure all information is accurate and respond promptly and thoroughly to all queries from regulators. Any delays or incomplete answers may prolong the process or even result in rejection.

Offering Stage: Completing the Share Issuance

Once HKEX approval is received, the company proceeds to the offering stage, usually taking 1 to 2 months. The main goal now is to market the company to investors and finalize the share pricing and distribution.

The roadshow is a critical aspect of this stage. The company’s management team visits major financial centers such as Hong Kong, Singapore, New York, and London to present the business, financial performance, and growth outlook to institutional investors, aiming to secure share subscriptions. Investor reactions and intentions during the roadshow will directly influence the final IPO pricing.

Share offerings typically consist of two parts: placement and public subscription. Placement involves selling shares directly to global funds, insurance companies, and other institutional investors—often representing the majority of the offering. Public subscription allows retail investors to participate in the IPO.

Setting the offering price requires balancing the company’s financing needs with what the market is willing to accept. If the price is set too high, demand may fall short; if it’s too low, the company may not raise as much as planned. The sponsor helps determine a reasonable price based on roadshow feedback, market conditions, and peer valuations.

Once the offering is complete, the company will be officially listed on HKEX and start trading on the public market. On the first trading day, share prices are determined by supply and demand and may fluctuate significantly.

Main Board Listing Requirements in Hong Kong

HKEX sets clear eligibility criteria for Main Board listing to ensure that listed companies have sufficient scale and profitability. Companies can meet listing requirements by one of three tests: the profits test, the market capitalization/revenue test, or the market capitalization/revenue/cash flow test.

Profits Test: The Most Common Route

The profits test is the most widely used standard. According to HKEX, the applicant company must have profits attributable to shareholders of at least HKD 35 million in the most recent year, and an aggregate of at least HKD 45 million over the two preceding years.

This standard is designed to filter for mature companies with stable profitability. For companies aiming to list, planning financial performance in advance to meet the profit benchmarks is a key prerequisite for success.

Market Capitalization/Revenue Test: Suitable for High-Growth Companies

For companies with fast revenue growth but not yet profitable, the market capitalization/revenue test provides an alternative listing route. Here, the company must have an expected market capitalization of no less than HKD 2 billion at listing and revenue of at least HKD 500 million in the most recent financial year.

This standard suits companies in their expansion phase, investing heavily to build the market and needing funds raised through a listing to support growth.

Market Capitalization/Revenue/Cash Flow Test: For Special Industries

The market capitalization/revenue/cash flow test is for companies with substantial cash flow but lower profits. Such companies must have a market capitalization of at least HKD 4 billion at listing and revenue of at least HKD 500 million in the most recent financial year.

This creates an opportunity to list for industries like infrastructure or utilities, which require major capital input and have longer profit cycles.

Specialized Technology Companies: A Green Channel for Innovators

Since 2018, the Hong Kong Stock Exchange has permitted unprofitable biotechnology companies to apply for listing. In 2025, the 'Technology Enterprises Channel ' was launched to provide specialised guidance for technology and biotechnology companies, allowing them to submit listing applications confidentially and speed up the approval process.

Listing Costs and Time Commitment

Listing is not free—companies must cover many expenses, including sponsor fees, accounting and legal fees, printing, and promotional costs. According to 2024 data, the average Hong Kong IPO listing cost is about HKD 80.77 million, or approximately 6.46% of total funds raised.

For small and medium-sized enterprises, listing costs can make up a significant portion of the capital raised. So, before deciding to go public, a company should weigh the cost-benefit carefully to ensure enough capital remains for business development after expenses are paid.

Time is another key factor. As discussed, the listing process usually takes around 13 months, but with ample preparation and quick responses to regulatory inquiries, it may be shortened to about 6 months. If documents are incomplete or major issues arise, the approval process may be much longer.

Beyond upfront cost and time, companies must also consider ongoing compliance expenses after listing. As a public company, regular financial reports, shareholder meetings, appointment of independent directors, and other obligations become standard—adding to ongoing operating costs.

Risks and Opportunities in Participating in IPO Investments

For individual investors, IPOs offer both opportunities and challenge. Newly listed companies are often still growing; if their development goes well, their share price can surge, yielding attractive returns. However, investing in IPOs also carries sizable risks that investors must evaluate carefully.

Potential Advantages of IPO Investment

First, IPOs allow investors to participate in a company’s growth story at a relatively low entry price. IPOs are usually priced at a discount compared to the secondary market to attract buyers. If the company fundamentals are sound and market demand is strong, shares may surge above the IPO price on the debut, delivering instant gains.

Second, IPOs offer access to new companies not yet available in the open market. This can help diversify a portfolio and capture new growth opportunities across industries and regions.

Additionally, public offerings ensure relatively equal information disclosure for both retail and institutional investors. IPO prospectuses reveal business models, financial health, risk factors, and more, enabling investors to make informed, rational decisions.

Main Risks of IPO Investment

However, IPO investing is not a sure win. Newly listed shares can be volatile, subject to market sentiment, overall conditions, and the balance of supply and demand. Some new listings may drop below offer price soon after debut, resulting in immediate losses.

Speculation risk is a major factor, too. Highly popular IPOs may attract overwhelming subscriptions and record-high multiples, but high demand doesn’t always mean high quality—it could just reflect temporary hype. When the speculation dies down after listing, the price can quickly tumble.

Also, most IPOs have a lock-up period restricting major shareholders and management from selling their stakes. When the lock-up ends and many shares flood the market, there may be downward pressure on the price.

For investors lacking research and analytical expertise, information asymmetry is dangerous. While the prospectus provides abundant data, interpreting numbers, projecting business outlook, and assessing industry competition all require professional skill and experience.

Suggestions for Rational Participation in IPOs

When considering IPOs, investors should review the prospectus thoroughly to understand the company’s core business, profit model, and key risks. It’s critical to focus on financial health: revenue trends, profitability, debt levels, and cash flow.

Investors must also consider industry prospects and the company’s competitive edge. Companies in high-growth sectors with unique technology or business models typically offer higher long-term value. Conversely, those in fiercely competitive markets without clear advantages carry higher risk.

Also, avoid blindly following the crowd—don’t rush just because an IPO is hyped. Assess your own risk tolerance and, based on your personal financial situation and investment goals, decide how much to invest or whether to participate at all. This is the prudent approach.

For risk-averse investors, waiting until the IPO has been trading for a while before entering—after prices and market sentiment have stabilized—can help avoid sharp short-term swings, albeit at the possible expense of missing early gains.

Leverage Tech Platforms for IPO Information

In the digital age, investors can conveniently access listing information and participate in IPO subscription via technology platforms. Longbridge Securities offers market data tools that let investors instantly track upcoming IPOs, review prospectus highlights, compare peer valuations, understand market subscription activity, subscribe for IPOs, and trade post-listing.

Frequently Asked Questions

Are IPO and Listing the Same?

An IPO is a company’s initial sale of shares to the public. “Listing” means the shares can be officially traded on a stock exchange. Strictly speaking, IPO refers to issuance, listing refers to trading—they are consecutive but distinct steps. Generally, a company is listed immediately following its IPO.

How Long Does It Take to List in Hong Kong?

A typical Hong Kong listing takes about 13 months, including preparation (3–6 months), approval (3–5 months), and offering (1–2 months). If the company is well-prepared, documents are complete, and responses to regulators are timely, it might be shortened to about 6 months.

What Are the Benefits of Going Public?

Listing enables companies to raise significant capital for business expansion, R&D, or M&A. It also boosts brand awareness and credibility, attracting more clients and partners. Listing provides shareholders with an exit path and greater liquidity and helps establish better corporate governance.

What Are the Risks in IPO Subscription?

Main risks include share price volatility, market speculation, and information asymmetry. Share prices are often quite volatile initially and may rise or fall sharply. Some hot IPOs may be driven by sentiment and fall back after speculation wanes. Investors should carefully read prospectuses, assess fundamental value, and avoid blind speculation.

Can Unprofitable Tech Companies List in Hong Kong?

Yes, since 2018 the HKEX has allowed pre-revenue biotechnology companies to list. Since 2023, it has also allowed pre-revenue specialised technology companies (including some artificial intelligence companies) to list. Additionally, the Technology Enterprises Channel launched in 2025, provides these companies with specialised guidance and enables them to submit applications confidentially, facilitating their access to the capital market.

Conclusion

Corporate listing is a complex, meticulous process involving preparation, approval, and offering, and requiring significant time, resources, and professional support. As an international financial center, Hong Kong offers diverse listing avenues for companies at various stages, from traditional profit-based paths to specialized chapters for innovators. For investors, IPOs provide a way to capture corporate growth opportunities, but require rational risk assessment, thorough research, and analysis.

Choosing any investment vehicle depends on your goals, risk tolerance, market view, and experience. Regardless of the tool, you must fully understand how it works, its risk profile, and trading rules, as well as establish sound risk management. Learn more about investing at Longbridge Academy or by downloading the Longbridge App.