Hong Kong: Pre-IPO Trusts On The Rise In Hong Kong

Last Updated: 19 September 2019
Article by Alice Lau and Ian Rumens

The Hong Kong Stock Exchange's (HKEX) broadening of its listing regime in 2018 has had a clear and almost immediate impact; the HKEX raised the third-highest amount of IPO capital in the world (behind the New York Stock Exchange and the NASDAQ) over the first half of 20191.

The rule change has driven the appetite for Hong Kong Initial Public Offerings (IPOs) among China-based companies. The listing reform opens the gateway for companies from emerging and innovative sectors, with weighted voting right structures, and biotechnology companies without any prior record of revenue or profit now to be listed on the HKEX. It also provides a concessionary listing route for Greater China and international innovative companies listed on qualifying exchanges overseas.

The pre-IPO trust structure is nothing new for Hong Kong's private wealth practitioners; it has always been a vital part of their proposition as a result of the jurisdiction's position as a gateway to the world for Chinese firms. However, the broader listing regime has led to a spike in popularity for the structure. Alice Lau, Executive Director, Head of Private Wealth Services, at Intertrust in Hong Kong explains what a pre-IPO trust is and why they are so popular.

What is a pre-IPO trust?

In the simplest terms, a pre-IPO trust is a trust arrangement set up ahead of an IPO for holding the shares of the company that will be listed. They are established to hold the shares of individual shareholders who hold a significant number of them - such as the founder, CEO, chairman and senior executives - before the company is listed.

Establishing the trust means that an individual's shares in the company to be listed are indirectly held by a trustee, providing all the certainty to the settlor that a standard trust structure would.

What are the benefits of a pre-IPO trust?

Understandably, the time period before an IPO sees directors and senior figures dedicating the bulk of their time to promoting the company, driving its growth and focusing on getting it to market. A pre-IPO trust removes a significant headache in that it is a safe vehicle in which to hold their shares that provides asset protection for the individuals involved and safeguards their futures.

Risk mitigation is a further benefit of a pre-IPO trust; it can protect against fluctuations in the value of the individual's shares and safeguard against the external factors that could derail the IPO process such as death, legal disputes or even a divorce. A trust provides continuity at these times and has a stabilising effect on the IPO itself.

A pre-IPO trust has all of the succession planning benefits of an ordinary trust as a settlor can ensure they and their family have the use and benefit of family assets – in this case their shares. It also helps to avoid probate, maintain privacy irrespective of the number of family members or any changes from one generation to the next.

Finally, segregation of the ownership of the company can be avoided by keeping the shares in a trust. This prevents against diluting control of the company – especially useful in family owned businesses.

What happens after the IPO?

Ordinarily, after the completion of the IPO a proportion of the shares is retained in the trust along with the individual's (often sizeable) windfall from the IPO. The proceeds are then managed and invested by the trustee as any other assets would be.

Who should structure your pre-IPO trust?

Selecting a suitable trustee is not an easy task but it's a hugely important one to get right. A dedicated trustee who understands the objectives of the trust and meets all the legal and regulatory requirements is the minimum requirement. However other factors to consider include:

  • whether or not the trustee is located conveniently so the settlor has easy access to them
  • the stability of the trustee
  • the level of client service provided
  • the organisation's track record in trust management.

Also, there are some key questions to ask when considering a trustee, including substance, commitment, expertise and flexibility.

Our Hong Kong team provide pre-IPO trusts to clients across the region and saw a strong increased demand for pre-IPO trust work in 2018. We have strong and stable private wealth professionals who have in-depth industry knowledge and expertise, working with legal advisors, accountants and financial consultants to provide excellent services for our clients.

Intertrust is a global leader in providing tech-enabled corporate and fund solutions to clients operating and investing in the international business environment. The Company has more than 3,500 employees across 30 jurisdictions in Europe, the Americas, Asia Pacific and the Middle-East. Intertrust delivers high-quality, tailored fund, corporate, capital market and private wealth services to its clients, with a view to building long-term relationships. The Company works with global law firms and accountancy firms, multinational corporations, financial institutions, fund managers, high net worth individuals and family offices.

Footnote

1 Source: KPMG Mainland China and Hong Kong 2019 mid-year review: IPOs and other market trends

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions