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

With the surge in Hong Kong IPO applications, concerns over the quality of listing application documents have triggered strong regulatory corrections.

Recently, Hong Kong SFC CEO Leung Fung-yee revealed that, together with the HKEX, they have sent letters to 13 major sponsors, requiring them to complete a comprehensive review and submit improvement reports within three months. The content includes serious deficiencies in the preparation of some listing documents, possible misconduct by sponsors, and severe mismanagement of resources.

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

This is a rare, heavy-handed regulatory move by the Hong Kong SFC towards sponsors in recent years.

According to Xinfeng’s interviews with several senior investment bankers practicing in Hong Kong, the writing of Hong Kong IPO prospectuses is usually “outsourced” to law firms, while sponsors mainly undertake coordination and underwriting functions.

With the rapid increase in IPO projects, law firms have reached the brink of their capacity, leading to frequent basic mistakes in prospectuses.

However, industry insiders told Xinfeng that since law firms are usually appointed by the sponsors, the sponsors, as the first party responsible, obviously cannot shirk responsibility.

In addition to lack of quality control, the “overpackaging” of prospectuses has also become another focus of regulatory attention.

The Hong Kong SFC also pointed out that some sponsors described issuers’ businesses with complex technical jargon, or packaged certain companies as industry leaders, etc.

With this corrective push from regulators, how sponsors will optimize workflows to improve prospectus quality is under scrutiny.

Law Firm Ghostwriting

The current regulatory focus is on prospectus quality issues.

The Hong Kong SFC found that sponsors had several serious deficiencies in preparing listing documents and responding to regulatory comments, and failed to properly handle key regulatory procedures during the offering phase.

Furthermore, the SFC noted that some sponsors had significant resource problems, including excessive reliance on external professionals for certain tasks without sufficiently evaluating their competency and resources; key sponsor personnel lacked the ability to supervise the transaction teams and participate in relevant work; and there was a lack of staff with the knowledge, skills, and experience required for sponsor work in Hong Kong IPOs.

This regulatory statement precisely hits a public secret in the Hong Kong IPO ecosystem.

Sources at several major brokerages confirmed to Xinfeng that, in practice, Hong Kong IPO prospectuses are mainly “ghostwritten” by law firms.

The typical process is: sponsors draft a general investment story framework, then outsource the actual drafting of the prospectus to a law firm, while sponsors themselves take on more of a coordinating and sales role.

This division of labor differs significantly from the A-share market, where brokerage investment banking teams write prospectuses themselves.

When project volume is moderate, the Hong Kong model of “sponsor builds the skeleton, law firm fills in the flesh” still operates efficiently; but in the current overloaded IPO environment, prospectus quality becomes difficult to safeguard.

Wind data shows that, based on listing dates, the top three law firms by project count for Hong Kong IPOs in 2025 are Jingtian & Gongcheng, Commerce & Finance, and Herbert Smith Freehills, with 50, 39, and 23 projects respectively. Together, they handled 112 cases—an almost 50% increase over the top three firms in 2024.

The limits of law firm capacity under pressure may be a major reason why some project documents have been crudely prepared.

But outsourcing is no excuse for exemption from responsibility.

The aforementioned investment banker told Xinfeng that law firms are usually appointed by the sponsor. Therefore, the sponsor, as the first party responsible, should be held accountable for prospectus quality.

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

In 2025, Hong Kong IPO underwriting is mainly split among CICC, CITIC Lyon, Huatai Financial, CMB International, and Morgan Stanley, together handling 122 projects—more than half of the total market share.

Between vast project numbers and limited internal manpower, how top institutions solve the “indigestion” quality control crisis has become a pressing challenge.

Playing the Adjective Game

“Overpackaging” by sponsors to boost issuer valuations is another major stubborn issue with Hong Kong IPO prospectus quality.

The Hong Kong SFC specifically pointed out that some sponsors are not clear about the issuer’s business model, describe business with complex technical jargon, and even purposely package companies with fragmented industries and low market share as "industry leaders."

This regulatory warning is not unfounded; the phenomenon of sponsors beautifying issuers by concept grafting is common.

The most common practice at present is “high-tech” embellishment.

Take Soul, a stranger social platform sponsored by CITIC Lyon, for example. Its business description has changed several times during the listing process. From the early “social metaverse” to its fourth IPO attempt, when it became an “AI + immersive social platform,” Soul’s user subscription fees were redefined as “emotional value service fees.”

Although the concepts are repeatedly refreshed, the essence of Soul’s business—matching strangers based on interest graphs—remains unchanged.

Even more subtle packaging methods are hidden in the “blind box” of industry data.

Unlike A-share prospectuses that list rankings of major peers with transparency, Hong Kong prospectuses often have “information disclosure blind spots” in statements about industry position.

Usually, Hong Kong prospectuses mention only the issuer in the industry position section, while competitors (second to tenth place) are referred to with generic placeholders like “Company A”, “Company B”, etc.

This information asymmetry means outsiders cannot immediately verify the credibility of claimed rankings, leading to a growing use of modifiers to highlight market position—the “adjective game.”

For example, “Grandpa’s Farm,” sponsored by CMB International, had 2024 revenue of 875 million yuan—less than half of peer Yingshi Holdings.

Yet in the prospectus, CMB International used specific modifiers like “organic zero complementary food” and “complementary food oil” to frame “Grandpa’s Farm” as industry No.1 in various segmented GMV metrics.

Similarly, “Master Copper,” also sponsored by CMB International, had lower total revenue than peer Zhu Bingren Copper, but defined its industry as “copper cultural and creative products.”

Because the prospectus does not have to name competitors directly, such skillfully packaged “No.1” titles can easily mislead investors in an information-starved capital market.

With regulatory scrutiny over sponsor due diligence deepening, this IPO operation mode—law firm assembly-line production and concept packaging via information blind spots—is facing unprecedented challenges.

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