(Yicai) March 20 -- Hong Kong's securities regulator has started limiting the number of initial public offerings that sponsors can handle at any one time, an executive at a Chinese investment bank told Yicai.

Sponsors can now take on no more than five IPO projects at a time under new rules being implemented by Hong Kong's Securities and Futures Commission, the executive said.

The SFC has begun enforcing requirements set out in a notice issued at the end of January. The notice stipulates that, except under very special circumstances and with valid justification, sponsors who simultaneously oversee or participate in six or more active listing projects will be viewed as lacking sufficient resources to fulfill their sponsorship duties.

The aim is to ease workloads and enhance the quality of IPO filing documents. Sponsors have been taking on too many projects amid a resurgence in Hong Kong’s IPO market since last year, which has made staffing tight. Fees are also lucrative, so more work translates into higher revenue. But as the workload increases, the quality of the paperwork becomes harder to guarantee.

Some sponsor institutions had severely unbalanced staffing before the new rules came out, according to data Yicai obtained from the SFC. At the end of last year, the busiest sponsor at one institution oversaw 10 ongoing projects as lead and participated in another nine as a member of the project team. Other major sponsors at the institution were also involved in a substantial number of projects, with most handling 11 or more each.

There have been several cases in which the quality of IPO filing documents did not come up to scratch, Yicai learned from the SFC. Some did not fully explain why the applicant qualified for listing or omitted to explain the development stages of the applicant’s main products, forcing the watchdog to repeatedly ask for supplementary materials during the review process.

Because there are not enough eligible sponsors to meet the growing demand for IPOs, the new rules will make staffing even tighter, which may in turn slow the listing progress of some companies, another investment banker told Yicai.

Some investment banks have begun to offer high salaries to compete for experienced sponsors, while adopting a more cautious approach to taking on new IPO projects, even declining to accept some, the person noted.

The sponsor shortage stems from the fact that Hong Kong’s IPO market went through a prolonged downturn before last year, while the training cycle for qualified sponsors is lengthy, according to a headhunter for financial institutions in the special administrative region. As a result, when the market rebounded, the number of sponsors was unable to keep up with demand, he said.

Editors: Tang Shihua, Futura Costaglione