By Iain O’Brien
Hong Kong’s stock exchange faces a pivotal moment as regulatory changes make listings faster and more flexible. Iain O’Brien explores how easing disclosure rules and allowing confidential filings can mask financial risks. Investors navigating this landscape must understand why stronger oversight and transparency are critical to maintaining confidence and market integrity.
Regulators of the Hong Kong Stock Exchange (HKEX) have been balancing between encouraging innovation and the listing of new business ventures on the one hand, and branding HKEX as a market based on disclosures, emphasizing compliance, high accounting standards, and requiring regular periodic updates from executives, on the other hand. Recent regulatory changes implemented over the past few years – and expanded throughout 2025 – have, however, sparked concerns among investors that HKEX is leaning more heavily towards increasing the exchange’s attractiveness at the expense of more stringent due diligence efforts.
One stream of compliance changes concerns the initial public offering (IPO) of companies. Since 2018, HKEX has made it easier for companies to get listed and trade on its platform. An important relaxation of the rules entailed that companies can now apply for an IPO before revenues, facilitating the public listing of promising startups in a variety of fields. In addition to this, in May 2025, HKEX rolled out its new rules for U.S.-style confidential filings, effectively allowing companies and executives to keep their financials and business strategy plans hidden in the early stages of their debut on the stock exchange. Several companies active in the AI and semiconductors fields – deemed sensitive and strategically important – have already been listed on HKEX in 2025 via this route. More companies are to follow.
Hithium Energy Storage Co is one example of the above. It is currently actively seeking to be listed on HKEX despite having experienced issues with its balance sheet as well as with regard to its broader business development plans. While on the surface Hithium is a rising star in the battery manufacturing industry, a more detailed examination of its accounts reveals that its positive cash flow has been propped up by unsustainable amounts of government subsidies provided by Beijing. The declared expansion of its overseas markets may also be a mere illusion. The company continues to emphasize its opportunities for growth in the United States via an assembly plant in Texas – including in its submissions to HKEX after the initially unsuccessful application for an IPO – but its framing omits the fact that it no longer qualifies for federal clean energy credits and that restrictions on property ownership in the US on foreign based companies may hinder its Texas plants’ expansion plans. Yet the company in its A1 application, provides little disclosure on these arrangements. Without rigorous diligence and ongoing supervision by the Hong Kong Exchange, there is a real risk that such practices could be obscured from investors.
Analysts have raised several issues with the current framework of regulations at HKEX, which give companies like Hithium the opportunity to get access to the exchange and benefit from investors’ funding before learning to stand on their own feet. Risks associated with such companies are compounded by the fact that existing compliance and reporting mechanisms at HKEX do not adequately account for the refinancing risks presented by their listing on the exchange. There is also an underemphasis of the cash flow quality of firms, especially in the case of newly listed companies. Executives can report planned growth via the projected expansion of their firm’s markets, but HKEX has no mechanism to verify these claims. Initial rapid revenue growths, often spurred by enthusiasm about a tech unicorn or other startup’s potential, might hide negative operating cash flows persisting across cycles. Shareholder loans, guarantees to affiliates and suppliers, put options, and off-balance-sheet commitments often remain hidden while they significantly change the risk profile of a firm. Offshore structuring can make reliable scrutiny of a company even more difficult to achieve, often masking where cash is reserved, where debt sits, and which part of the legal structure bears the burden when losses are registered.
The connection between company executives’ interests and the opportunities offered by HKEX’s more relaxed regulatory environment are clear. HKEX can effectively be used by emerging firms with more questionable business management practices to gain access to the exchange and funding from investors under terms that portray a company in a much more favorable light than what their accounting would otherwise suggest. The initial hype surrounding the listing of a company combined with the option for confidential filings in the early stages of a listing can exacerbate risks associated with an IPO.
Regulators at the Hong Kong Stock Exchange should heed warnings about the negative consequences of recent examples of the rapid decline of share prices after the listing of firms, and the hidden risks associated with more lax regulatory rules and due diligence investigations. Investors’ confidence in the stock exchange as a whole can be seriously damaged if the perception that quick listings come at the expense of protecting their interests becomes more widespread. Clearer liquidity bridges, the requiring of the disclosure of refinancing dependencies, the standardized presentation of cash flow trends, and the publication of the financial exposure of related parties’ financial exposure would represent a step in the rights direction. Nevertheless, depending on the performance of newly listed companies and the proportion of them registering the decline of their shares or witnessing de-listing might prompt HKEX to altogether consider revising their permissive regulatory regime in the close future.
About the Author
Iain O’Brien is a financial services professional with over 20 years of experience in stock market regulation and compliance. Originally from Ireland, Iain holds a Finance degree. He has spent much of his career in the UK, advising regulators and ensuring companies meet stringent market standards.
