Chinese listing applicants are increasingly demanding commitment letters from their Hong Kong sponsors, potentially compromising the due diligence done on initial public offerings (IPOs) in Hong Kong.
Commitment letters promise a particular price for a company’s shares at IPO, giving issuers certainty in a volatile market. But sponsors risk not achieving this price, incentivising quick and shallow diligence to minimise exposure.
“Commitment letters encourage sponsors to go to market as soon...