HONG KONG: A surge in initial public offerings in Hong Kong is exposing staffing strains at Chinese investment banks, as regulators tighten oversight and cap the number of deals senior bankers can handle at once.

Last month, Hong Kong's Securities and Futures Commission (SFC) warned 13 banks over what it described as "serious deficiencies" in IPO applications. The regulator asked them to conduct comprehensive reviews and limited the number of mandates a signing principal can oversee at any one time to six.

The SFC did not name the banks, but said the listing applications filed by the 13 firms accounted for around 70 percent of market share in the Asian financial hub.

The move highlights intense competition in Hong Kong's lucrative IPO market. Chinese banks have expanded their presence in recent years, leveraging local credentials to gain ground against global rivals such as Goldman Sachs, Morgan Stanley, and UBS.

Pressure on margins in equity capital markets has increased the need for banks to secure more listing mandates, recruiters say.

"Firms must execute more deals to justify their cost bases and generate sufficient revenue. As a result, we're seeing several bulge-bracket and Asian banks actively hiring sponsor principals, sparking a short-term talent war in this niche," said Sid Sibal, managing director of Aster Recruiting.

The SFC's action followed a December letter issued jointly with the Hong Kong exchange to listing sponsors — banks that lead IPO applications — warning that submissions were not meeting required standards. A person familiar with the matter said the SFC's warnings targeted banks that had taken sponsor roles in most listing applications, but declined to be named as discussions were private.

IPO activity has accelerated sharply. The number of applications more than doubled from 160 in June last year to 414 as of this week, including 96 new filings in January alone, according to exchange data.

Chinese investment banks, backed by strong mainland client networks, are handling a growing pipeline of deals, said Kenny How, a councillor of the Hong Kong Securities & Futures Professional Association (HKSFPA).

Banks, including CICC, CITIC Securities, and Huatai International, have increased market share and dominated Hong Kong listings in recent years. They are followed by China Securities International and Guotai Junan International, according to Reuters calculations based on filings.

LSEG data showed that Chinese banks accounted for nearly 70 percent of Hong Kong's US$579 million listing-fee pool last year, up from 48 percent in 2019.

An SFC spokesperson declined further comment, referring to a circular issued on January 30. The banks named did not respond to requests for comment.

The rebound in IPOs is testing not only senior bankers but overall staffing levels, as larger deals demand more input from bankers and lawyers, How said.

Since 2023, CITIC, CICC, and many foreign banks have cut investment banking staff in Asia amid a slowdown in China-related deals. Bankers and headhunters say recent hiring has not kept pace with the rebound since late 2024.

Industry sources said banks are scrambling to win mandates but lack sufficient resources and supervision to ensure application quality.

Public records show the five largest Chinese banks have between five and 21 signing principals registered with the SFC.

With deal volumes surging, some firms are drawing on mainland staff or relocating them to Hong Kong, two sources said. The SFC warned last month that all individuals engaged in sponsor work would face stricter examinations after some banks allowed ineligible staff to perform such duties.