Better Home Group feels heat of new listing transparency rules

The Chinese drying rack maker was asked to disclose five conditions.

Better Home Group Holdings, became the first company to feel the heat of the new transparency rules set by the Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange (HKEX) for initial public offerings (IPOs).

Based on a Bloomberg report, the drying rack maker was asked to publish five conditions “related to broker fees, IPO pricing, share allocation, and monthly updates for a year on how the proceeds are being spent” in its offer document.

This is the first time a company was asked to disclose conditions after SFC and HKEX announced their crackdown on IPO-related misconduct in May 2021.

As of date, Bloomberg said SFC and HKEX have not accused Better Home Group of any manipulation.

If the watchdogs find the company’s disclosures unsatisfactory, they could potentially stop its listing on 12 November.

Meanwhile, share sales for the company have been allowed and ended on 5 November. 

In its filing, the company disclosed that it plans to raise HK$150m (S$26m) in its IPO.

Better Home Group said its seven underwriting brokers, led by Giraffe Capital and Guotai Junan Securities Co, would receive a 10% commission of around HK$40.7m which equates to 27% of its maximum planned gross proceeds.

Bloomberg, quoting  Better Home, said the company’s commission rate is “relatively higher than those offered by large-cap corporations that are well-known to investors.”

The company also explained that underwriters have to spend more time and effort in marketing shares of a small-cap firm like them.

Unusually high underwriting commissions were amongst the indications of suspicious activity listed by the SFC and HKEX in its May statement.

“The average underwriting commission rate for IPOs with market capitalisations below $600 million increased substantially from about 4% in 2017 to 12% in 2020,” the SFC and HKEX said. 

“These high underwriting commissions, along with other listing expenses, were disproportionate to the net IPO funds raised. In the most extreme cases, the overall underwriting commission rates paid,” they added.