Knocking on the Greater's China IPO market

Global IPO trends

The global IPO trends in 2019 could be one of the biggest years for IPO. There is a long list for companies waiting for the IPO such as Didi Chuxing (Uber of China) and Bytedance (Tik Tok app) in China. In US that includes ‘megaa IPO’ like Uber, Lyft, Pinterest and GE Healthcare. The analysts predict that the 2019 IPO deal numbers could be below those recorded in 2018, but it is likely that the global proceeds in 2019 could surpass the 2018 levels. Recently in March 2019, Futu Holdings, a backed-Tencent Holdings online broker company made its maiden entry into HKSE and everyone is going merry-round about it. Its debut shares in NASDAQ soars 28% with a perception among the investor to expand business with younger investors.

Pre-IPO trust

With the positive sentiment for 2019 especially in China, a pre-IPO trust planning could be a vehicle for the investor to protect the asset and it extends to a succession planning to specific beneficiaries. Greater China is an interesting market to discover this type of structure due to the awareness by high net worth individuals here.

How a Pre-IPO trust works

Often, the individual has already own an offshore company (“Holdco”). Through the Holdco, the individual will subscribe to the company that is to listed (“Listco”). Holdco may qualify for tax-free dividends from the shares, along with voting rights and value held by the Holdco. They also provide asset separation and protection from risks faced by the Listco in the case of legal issues, tax liabilities and lawsuits. With the establishment of a pre-IPO trust, the individual transfers all of his shares in Holdco to the trustee which in turn, the trustee is now indirectly hold shares in the Listco.

A basic illustration of the pre-IPO trust structure is as follows:  

Credit to: Maple and Sovereign Group, HK

Via this planning, the individual is now gaining a control over the shares in the Listco. If there is no such plan, upon the death of the individual, the shares of the company will be inherited in accordance to the local succession law, without specific distribution to the beneficiaries. It can also reduce the risk of fluctuations in the price of shares.

Other interesting type of a pre-IPO can be seen in the corporate industry, namely Employee Benefit Trust and Restricted Share Unit scheme. The company, who wishes to retain their employees by profit of the listed company, may use this trust structure so that the company may distribute the awards through the price of the shares. This has gaining attraction especially in the Greater China area.

Taking advantage of the Greater’s China IPO market

One decision is whether or not to place equity into a trust prior to an IPO. Surely, with a careful planning of the pre-IPO trust, the individual can take advantage of the price of the shares in the listed company. With this, such individual can retain control and stewardship of the company while minimising the commercial and emotional frictions that can arise before and after an IPO.

Following a successful IPO of the Listco, the IPO trust can provide a lifetime wealth planning and trust estate succession across the generation of the family.

With the long list of the companies to be listed in the Greater China, it is time for individuals, not just a high net worth individuals to take advantage of the vast yet potential Greater China’s IPO market.