What Does IPO Really Mean? A Complete Guide to Listing Processes and Eligibility Requirements in Hong Kong and US Stocks

In financial news reports, we often see headlines like “Company X launches IPO,” but many people do not truly understand what IPO means. What exactly does IPO represent? How does it change a company’s fate? Why are the listing rules for Hong Kong stocks and US stocks so different? With these questions in mind, this article will provide you with a comprehensive explanation.

IPO Meaning: The Transformation from Private Enterprise to Public Company

IPO stands for Initial Public Offering, which means “首次公開發行” in Chinese. Essentially, it is the entire process of a private company issuing shares to the public for the first time, transforming into a publicly listed company.

From a financing perspective, when a startup grows to a certain scale relying on founders’ and early investors’ funds, these funds alone are no longer sufficient for further expansion. At this point, company management will realize the need for substantial external capital to advance business development, enter new markets, or supplement operational funds. The IPO means raising capital by issuing shares to the public, which is an inevitable choice for many high-growth companies.

More deeply, IPO signifies a fundamental change in ownership structure—from private control to public shareholding. During this process, original investors finally have the opportunity to realize their investments, and millions of new investors can purchase shares of these high-quality enterprises. As a result, the listed company can raise capital to repay debts, reserve momentum for future development, and enhance market visibility and reputation.

US Stock IPOs: Strict Procedures, Diverse Standards

The US stock market is the most mature, with the most regulated listing process. Companies first need to hire an investment banking team as underwriters, who coordinate and guide the entire listing process. Then, the company and underwriters submit a registration statement to the U.S. Securities and Exchange Commission (SEC), including detailed financial statements, business plans, use of funds, and risk disclosures.

During the SEC review period, the company conducts a nationwide roadshow lasting about two weeks to introduce its business prospects to potential investors. After SEC approval, the company finalizes the IPO pricing and the exchange listing, then negotiates with underwriters on the allocation of shares, and finally begins trading on the open market.

The listing qualification standards for US stocks are divided into two major exchanges:

New York Stock Exchange (NYSE) requires meeting any one of the following conditions:

• Three-year pre-tax profit totaling at least $100 million, with each of the last two years exceeding $25 million
• A global market capitalization of at least $500 million, with revenue of at least $100 million in the past 12 months, and cumulative cash flow of at least $100 million over the past three years, with each of the last two years having cash flow no less than $25 million
• A global market capitalization of at least $750 million, with annual revenue in the last two years no less than $75 million

The NASDAQ exchange has relatively flexible requirements, mainly including:

• Pre-tax profit of $1 million in any of the last one or three years, with shareholders’ equity of at least $15 million, public market value not less than $8 million, and at least 3 market makers
• Shareholders’ equity of at least $30 million, with two years of operating history, public market value of at least $18 million, and more than 3 market makers
• Listed securities market value of at least $75 million, public market value of at least $20 million, and more than 4 market makers
• In any two of the last one or three years, total assets and revenue of $75 million, public market value of at least $20 million, and more than 4 market makers

Hong Kong Stock IPOs: Relatively Lenient Thresholds and Ample Growth Space

The Hong Kong Stock Exchange’s listing process is also systematic and comprehensive. Companies need to appoint multiple intermediaries, including sponsors, accountants, legal advisors, and valuers, to form a strong listing team. Then, they conduct thorough due diligence and audits, simultaneously completing share verification, asset validation, and related legal document preparations.

Many companies also carry out business or equity restructuring before listing to optimize governance structures. After submitting documents to the China Securities Regulatory Commission and the Hong Kong Stock Exchange, the company publishes the prospectus on the HKEX website and responds to regulatory inquiries. Once approved, the company can proceed with non-deal roadshows and international roadshows, ultimately listing in Hong Kong.

The main board listing eligibility criteria are met if any one of the following is satisfied:

• Profit of at least HKD 20 million in the most recent year, with cumulative profit of at least HKD 30 million over the previous two years, and profit of at least HKD 500 million at the time of listing
• Market value of at least HKD 4 billion at listing, with revenue of at least HKD 500 million in the most recent financial year
• Market value of at least HKD 2 billion at listing, with revenue of at least HKD 500 million in the most recent financial year, and cash inflows from operating activities of at least HKD 100 million over the previous three financial years

Investing in New Shares: Opportunities and Challenges

Investing in newly listed shares offers significant advantages:

First, IPOs provide a discounted price set by the company, usually the lowest price retail investors can buy at. Many high-quality private companies are long-term inaccessible to retail investors due to shareholding issues; listing finally opens this opportunity. Missing the IPO price often means the stock price will rise rapidly afterward, making re-entry more costly.

Second, quality companies often choose to go public during a bull market, when the overall market is favorable, increasing the likelihood of profit for investors. Compared to private placements, IPO prices are usually determined after extensive market negotiations, with more transparent information. Large institutional investors and retail investors rely on the same prospectus for decision-making, with little information asymmetry.

However, investment risks must also be carefully considered:

Speculative trading of new stocks is common, and not all listed companies are quality investments. When large institutional and well-funded investors sell off, retail investors may be forced to hold due to limited funds or execution capabilities, unable to follow institutional moves in time.

Additionally, all positive factors are often reflected in the IPO pricing before listing. This means that in the short term, the stock price may lack upward space or even face overvaluation risks. Investors should evaluate whether the company’s fundamentals truly support the current valuation, rather than blindly chasing the hype at listing.

Conclusion

IPO means far more than just raising funds; it signifies an important turning point in a company’s lifecycle and an investment opportunity. For investors interested in new stock investments, the key is to thoroughly understand the company’s financial health, industry prospects, and competitiveness, rather than blindly following trends. In a volatile listing environment, adopting a long-term holding and diversification strategy, and adjusting based on market changes, is essential. Only then can one achieve stable and substantial returns from IPO investments.