Ditching the 'Greenshoe' Becomes a Trend as A+H Companies Rush to Join Stock Connect

Since 2025, a subtle but far-reaching shift has been quietly unfolding in the A+H listing space — more and more companies are voluntarily forgoing the "greenshoe mechanism" (over-allotment option) in exchange for eligibility to be included in Stock Connect on their first day of trading. This trend is not only changing corporate IPO strategies but also reflects a deeper evolution in Hong Kong's market liquidity landscape.

Jihong Shares Breaks New Ground, Others Follow Suit

In May 2025, Jihong Shares became the first A+H company to achieve inclusion in Stock Connect on the first day of its H-share listing by forgoing the greenshoe mechanism. This pioneering move quickly attracted market attention.

By 2026, this approach has evolved from an isolated case into a full-fledged trend. Multiple A-share companies, including Zhaowei Electromechanical, Guanghe Technology, and Nationz Technologies, have adopted the same strategy when issuing H shares in Hong Kong. Meanwhile, more companies planning Hong Kong listings have explicitly stated in their issuance proposals that they intend to forgo the greenshoe mechanism, making "first-day Stock Connect inclusion" a key strategic consideration.

The Greenshoe vs. Stock Connect Trade-Off

The greenshoe mechanism is essentially a price stabilization tool. Underwriters can over-allot up to 15% of the originally planned offering size during an IPO and stabilize the share price through market operations within 30 days after listing. For new share offerings, this mechanism effectively cushions early selling pressure and reduces the risk of shares falling below the offering price.

However, the existence of the greenshoe mechanism means that during its exercise period — typically 30 calendar days — the company's actual public float and share capital structure remain uncertain. Under Stock Connect inclusion rules, this uncertainty prevents the relevant stock from being included in the Stock Connect universe on the first day of trading. Inclusion is typically deferred until after the greenshoe mechanism has been fully exercised.

For A+H companies, the significance of Stock Connect is self-evident — it opens a direct channel for mainland investors to participate in Hong Kong stock trading and can significantly enhance a stock's liquidity and trading activity. Market data shows that securities included in Stock Connect often see a notable increase in average daily turnover compared to pre-inclusion levels, with some individual stocks experiencing several-fold growth.

Therefore, forgoing the greenshoe means sacrificing short-term price stabilization protection in exchange for earlier access to the vast mainland capital pool. Increasingly, companies are choosing the latter.

Liquidity Anxiety Drives the Strategic Shift

Behind this collective pivot lies the reality of intensifying liquidity divergence in the Hong Kong market.

In recent years, overall liquidity in the Hong Kong stock market has been under pressure, particularly for small- and mid-cap stocks. Some securities not included in Stock Connect have experienced chronically low average daily turnover, with some even trending toward "penny stock" territory. Against this backdrop, whether a stock can be included in Stock Connect as quickly as possible has become a critical variable determining its liquidity fate.

From a corporate perspective, first-day Stock Connect inclusion delivers at least three advantages. First, immediate participation by southbound capital helps boost trading activity on the first day and beyond. Second, ample liquidity itself serves as the best "price stabilizer," partially substituting the function of the greenshoe mechanism. Third, strong liquidity performance supports the company's subsequent refinancing and market capitalization management efforts.

An investment banking professional noted that for companies already enjoying a certain level of recognition and an established investor base on the A-share market, the risk of forgoing the greenshoe is relatively manageable. Mainland investors are familiar with these companies and are more willing to trade through the Stock Connect channel, which objectively provides share price support.

Chain Reactions Across the Market Ecosystem

This trend is producing chain reactions in the pricing mechanisms and broader ecosystem of the Hong Kong stock market.

First, in the pricing phase of issuance, the absence of the greenshoe "safety cushion" may make underwriters and issuers more cautious in pricing, favoring more generous discounts to reduce the probability of shares breaking below the offering price. This is not necessarily a bad thing for investors.

Second, the early involvement of Stock Connect capital is changing the investor composition during the initial trading period of new listings. Traditionally, the early trading phase of Hong Kong IPOs has been dominated by international institutional investors and local retail investors. The addition of Stock Connect capital introduces a new pricing force and trading style, making market dynamics more diversified.

Furthermore, this trend is also pushing the Hong Kong Stock Exchange and regulators to consider room for institutional optimization — whether it is possible, through rule adjustments, to maintain the greenshoe mechanism while achieving compatibility with the Stock Connect inclusion framework, so that companies no longer face an either-or dilemma.

Outlook: Rational Assessment Remains Key

Although forgoing the greenshoe has become a trend, this does not mean it is suitable for every company. For firms with smaller market capitalizations, lower visibility, or operating in highly volatile industries, the price stabilization function of the greenshoe mechanism still holds significant value. Blindly following the trend could lead to the awkward scenario of shares breaking below the offering price on the first day with no backstop measures in place.

Market professionals advise that companies should make rational trade-offs between greenshoe protection and Stock Connect benefits based on a comprehensive assessment of their own fundamentals, investor base, and market conditions. After all, listing is just the starting point — long-term market capitalization performance is the ultimate consideration.

It is foreseeable that as the A+H listing model continues to gain momentum, discussions around the greenshoe trade-off will persist. Behind this seemingly technical institutional debate lies companies' deep-seated desire for capital market liquidity and the ongoing evolution of the Hong Kong stock market in the era of mutual market access.