(Bloomberg) -- Hong Kong listing hopefuls are shedding light on the inner workings of their initial public offerings, revealing cross-investments and personal connections, just as regulators step up scrutiny of structures that risk distorting the market.
The unusual level of detail was on display Friday in the prospectus of Hosin Electronics Co., a Chinese memory product maker seeking to raise HK$1.22 billion ($156 million) in an IPO. The company disclosed that a circle of corporate allies and personal acquaintances are among its cornerstone investors — which receive guaranteed allocations in exchange for agreeing to hold the stock for a certain period — who agreed to absorb as much as 42% of the offering.
The Hosin backers include smartphone maker Shenzhen Transsion Holdings Co. and chip supplier Shenzhen Longsys Electronics Co. Hosin disclosed that it had also served as a cornerstone backer for both companies’ own Hong Kong listings this year. While Hosin stated that the deals weren’t “inter-conditional,” the dynamic illustrates how industry partners at times become involved in each other’s deals. Hosin’s filing also details how it was introduced to other wealthy investors through acquaintances and industry meetups.
The additional disclosures are among the first since Hong Kong regulators started ramping up scrutiny of the city’s booming IPO market to boost transparency and improve the quality of listings. In mid-October, they asked IPO banks to look more closely into potential connections between investors and listing applicants, and to avoid arrangements that could paint an inaccurate picture of buyer demand.
There’s no indication of anything untoward in the type of cross-investment detailed in the Friday filings. Business partners and close allies have long been part of the Hong Kong IPO scene, and there have been similar cases where companies invested in each other’s listings. Hosin and Longsys are strategic partners and both are suppliers to Transsion, their filings show.