In the last two months of 2023, at least three Chinese law firms have been writing prospectuses for IPOs in Hong Kong, breaking the norm where usually their international counterparts take the lead.
In November, Fangda Partners assisted WuXi XDC in listing on the HKEX raising HKD3.676 billion, making it the year’s third-largest IPO in the region. Subsequently, Jia Yuan Law Offices and JunHe provided consultation for the Hong Kong IPOs of Shanxi Industrial Equipment Installation Group and Sinosynergy, respectively. All three law firms held the same roles in the transaction: as Hong Kong and PRC law advisers and were responsible for drafting the prospectus.
Pete Zhang and Zhang Ke, the leading partners of JunHe in Sinosynergy’s IPO, have noticed an increasing trend of Chinese law firms taking on the role of Hong Kong legal counsel and writing prospectuses in recent years.
“As Chinese law firms gradually expand their overseas legal business in Hong Kong stocks, more and more legal talents are flowing from foreign-funded law firms to Chinese-funded law firms,” said Pete Zhang from the Guangzhou office. These talents usually bring considerable market experience and proficiency in drafting prospectuses in English, enhancing the competitive edge of Chinese law firms in Hong Kong.
As one of Shanxi Industrial Equipment Installation Group’s IPO consultants, Benjamin Wang, the senior partner at Jia Yuan’s Hong Kong office, said Chinese law firms with offices in Hong Kong have the advantage of the synergy between domestic and overseas teams. The prospectuses they draft together are clearer, and comprehensively demonstrate the operational models of mainland companies. “Chinese law firms have a deeper understanding of the history, business models and finances of mainland enterprises, and these are precisely the matters that investors are particularly concerned about,” said Wang.
He believed that Chinese law firms are well versed in mainland corporate culture and systems, they can also significantly reduce the communication costs between issuers and lawyers.
However, Zhang Ke, who is based in JunHe’s Beijing office and was a former partner at Reed Smith, believed that in terms of market share, foreign law firms in Hong Kong still dominate the market. Chinese law firms “are definitely getting a slice of the pie”, but it will take time for development to match foreign law firms.
Unlike international capital markets where law firms are responsible for writing prospectuses, in China’s domestic IPO market, investment banks traditionally take the lead in this process, with law firms ensuring the prospectus aligns with their legal opinions, serving as a form of assurance.
As far back to 2012, the China Securities Regulatory Commission had been promoting and encouraging qualified law firms to write prospectuses in a guidance opinion, with the aim of transitioning from an approval-based IPO system to a registration-based system. It was not until last year that the first prospectus written by a law firm appeared on the A-share market.
Liu Jing, a Beijing-based senior partner at Jia Yuan, believed that calls from regulators could not solve domestic law firms’ issues of scale, fee structures and loss-bearing capacity. “If lawyers write the prospectus, does it mean that the lawyer mainly bears the responsibilities typically shouldered by intermediaries?” Liu said.
She added that drafting prospectuses requires lawyers with financial and accounting expertise. Domestic law firms have relatively few relevant talent reserves and professionalisation in this area needs more time to develop.
