News & Insights

HKEX seeks views on a proposed New Board for “New Economy” companies

On 16 June 2017, a public consultation was launched by The Stock Exchange of Hong Kong Limited (the “Exchange”) on a package of proposals to reform the Hong Kong’s listing regime through two separate papers:

This client alert provides an overview of the proposals discussed in the New Board Concept Paper. Please refer to our client alert for an overview of the proposals in the GEM/ Main Board Reform Consultation Paper.

Proposed introduction of a New Board for “New Economy” companies 

The Exchange proposes to introduce a “New Board” to attract companies from “New Economy” sectors with one or more of the following characteristics that currently prohibit them from listing in the local bourse:

  • pre-profit companies;
  • companies with non-standard governance features; and
  • Mainland Chinese companies that wish to list on the Exchange as a secondary listing venue.

What are “New Economy” companies?

The Exchange explains that “New Economy” companies for the purposes of listing on the New Board may encompass industries include biotechnology, health care technology, internet & direct marketing retail, internet software & services, IT Services, software, technology hardware, storage & peripherals.

In light of the evolving nature of technology and the interactive relationship between the traditional and new economic sectors, no fixed definition is proposed.  The Listing Committee will retain the ultimate discretion to determine the listing eligibility for the New Board on a principle-based approach.

Two segments: New Board PRO and New Board PREMIUM

The Exchange proposes that the New Board be divided into two segments to cater to the different needs of different types of issuers and investors: New Board PRO and New Board PREMIUM.

See below a summary of the key features of the two segments:

New Board PRO New Board PREMIUM

Target issuers

Early-stage / pre-profit New Economy companies 

N.B. The Exchange may refuse an application for listing on the New Board PRO if it has reason to believe that the applicant could meet the eligibility requirements for New Board PREMIUM, GEM or the Main Board 

New Economy companies meeting Main Board financial and other key requirements, but unable to meet certain criteria:

  • Non-standard equity governance structures
  • US-listed companies with standards differing from Hong Kong

Investor eligibility

Professional investors only

Same as Main Board
(open to both retail and professional investors)

Admission financial criteria

  • No financial or track record requirements
  • Minimum expected market capitalisation of HK$200 million
Same as Main Board

Minimum public float and number of investors at the time of listing

25%; 100 investors Same as Main Board

(25%; 300 investors) 

Offer mechanism Placement  Public offer 
Suitability assessment “lighter touch” approach  Same as Main Board
Listing adviser Financial advisers
(Type 6 licence holders)
Sponsor
Approval authority Listing Department
(authority delegated from Listing Committee)
Listing Committee
Weighted voting rights (“WVR”) structure Permitted (see further details in the section headed “Weighted voting rights structure permitted” below)
Overseas issuers
  • Place of incorporation and place of central management and control must be in jurisdictions with regulatory cooperation measures in place with the Securities and Futures Commission (“SFC”)
  • Secondary listings by Mainland Chinese companies permitted
  • No requirement for Hong Kong equivalent shareholder protection as required by the Joint Policy Statement Regarding the Listing of Overseas Companies jointly issued by the SFC and the Exchange in September 2013
  • Place of incorporation and place of central management and control must be in jurisdictions with regulatory cooperation measures in place with the SFC
  • Secondary listings by Mainland Chinese companies permitted
  • Need to provide Hong Kong equivalent shareholder protection standards, but there will be waivers for US-listed companies)
Continuous listing obligations

Need to comply with the standards similar to the Main Board:

  • timely disclosure of material information
  • publication of financial statements for the half-year and full-year under prescribed accounting standards
  • notifiable and connected transaction rules
  • directors’ suitability and minimum INED representation
  • company secretary must be appointed
  • general meetings will be required
  • super-majority voting is required on certain fundamental matters
  • pre-emption rights for existing shareholders to protect them from dilution
Delisting

Automatic delisting if continuously suspended for 90 days

Automatic delisting if continuously suspended for 6 months

 

Weighted voting rights structure permitted

As mentioned above, applicants to the New Board are allowed to adopt a WVR structure.  As to how to regulate issuers with a WVR structure, the Exchange invites views on two possible approaches:

  • “disclosure-based approach” – applicants should disclose that they have a WVR structure and the risks associated with the structure and other matters, such as the identities of WVR holders, their voting activities and the details of any transfers of WVR; or
  • alternatively, in addition to the disclosure requirement, mandatory safeguards would be imposed for companies with WVR structures (e.g. restrictions on the types of persons that can hold WVR, the minimum equity that they must hold in the company on an ongoing basis and restrictions on the transfer of WVR to other persons, requiring a “sunset clause” providing for the WVR structure to fall away after a pre-determined period of time). The safeguards could vary according to whether the company is listed on New Board PREMIUM or PRO. Further, issuers already listed on a recognised US exchange with a good compliance record would be allowed to maintain their current WVR structures.

Notes: 

  1. The Exchange briefly mentioned in the New Board Concept Paper that it is exploring the creation of a Private Market which would be a registration-only platform for unlisted companies with a market value below HK$150 million to register share transfers and disclose information.
  2. The Exchange proposes that there will not be fast-track migration mechanism between the New Board and the Main Board or GEM, or from New Board PRO to New Board PREMIUM.There will be a two-month public consultation period ending on 18 August 2017 for the New Board proposals.  If there is market support for the proposals, the Exchange aims to finalise detailed New Board listing rules in early 2018.

When will the New Board be launched?

There will be a two-month public consultation period ending on 18 August 2017 for the New Board proposals. If there is market support for the proposals, the Exchange aims to finalise detailed New Board listing rules in early 2018.

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