News & Insights

Tougher listing requirements to take effect in mid-Feb 2018

On 15 December 2017, The Stock Exchange of Hong Kong Limited (the “Exchange”) published its consultation conclusions on the consultation paper on the review of the Growth Enterprise Market (“GEM”) and changes to the GEM and Main Board Listing Rules published on 16 June 2017.

The Exchange decided to implement substantially all of the proposals in the consultation paper, including, among other things:

  • removing the streamlined process for GEM transfers to the Main Board;
  • raising the minimum cash flow requirement for GEM applicants from HK$20 million to HK$30 million;
  • raising the minimum expected market capitalisation of GEM applicants at the time of listing from HK$100 million to HK$150 million;
  • introducing a mandatory public offering requirement of at least 10% of the total offer size for all GEM IPOs;
  • extending the post-IPO lock-up requirement on controlling shareholders from one year to two years for GEM; and
  • raising the minimum expected market capitalisation of Main Board applicants at the time of listing from HK$200 million to HK$500 million.

This client alert summarises the changes to the GEM and Main Board listing requirements that will take effect on 15 February 2018.

Changes to the GEM listing requirements

 

Current regime

New regime

Name

English name: “Growth Enterprise Market” (acronym: “GEM”)

Chinese name: 「創業板」

Rename as “GEM” (for both Chinese and English names)

Target issuers

Companies of an emerging nature

Small to mid-sized companies

Approval authority

Listing Department (authority delegated from the Listing Committee)

 

Listing Committee

P.S. The unwinding of authority delegated to the Listing Department by the Listing Committee will be announced at a later date after the outcome of the proposed separate consultationon the system for decisions of the Listing Committee.

Minimum cash inflow from operating activities before changes in working capital for the two financial years immediately preceding the issue of the listing document

HK$20 million

HK$30 million (50%)

Minimum market capitalisation at the time of listing

HK$100 million

HK$150 million (↑50%)

Minimum public float value at the time of listing

HK$30 million

HK$45 million (↑50%)

Offering mechanism

Free to decide the offering mechanism provided full disclosure is made in the listing document (100% placing allowed)

 

  • Mandatory public offering of at least 10% of the total offer size
  • Allocation of offer shares between the public and placing tranches and the clawback mechanism to be consistent with those in Practice Note 18 to the Main Board Listing Rules

Placing to core connected persons, connected clients and existing shareholders, and their respective close associates

Allowed so long as full disclosure is made in the listing document

Placing to core connected persons, connected clients and existing shareholders, and their respective close associates requires waiver/ consent of the Exchange (similar to the relevant requirements under Appendix 6 to the Main Board Listing Rules and HKEX-GL85-16)

Post-IPO lock-up period on controlling shareholders

 

Controlling shareholders cannot sell shares for the first six month upon listing.

For the next six months, controlling shareholders may sell shares but must retain control

Controlling shareholders cannot sell shares for the first year upon listing.

For the second year, controlling shareholders may sell shares but must retain control

 

Changes to the Main Board listing requirements

 

Current regime

New regime

Minimum market capitalisation at the time of listing

HK$200 million

HK$500 million (↑150%)

Minimum public float value at the time of listing

HK$50 million

HK$125 million (↑150%)

 

How will the changes affect new listing applicants?

All new listing applications received by the Exchange prior to 15 February 2018 will be processed in accordance with the GEM or Main Board Listing Rules in force immediately before 15 February 2018, as the case may be, with only one renewal of such application permitted thereafter (which must be made within three calendar months from the date on which the application has lapsed).

Applications received on or after 15 February 2018 will be processed in accordance with the amended GEM or Main Board Listing Rules, as the case may be.


Changes to the GEM transfer mechanism

 

Current regime

New regime

Application for transfer of a GEM listing to the Main Board (“GEM Transfer Applications”)

 

Streamlined process:

  • No sponsor is required
  • Publication requirements:

– Announcement of an application to transfer to Main Board
– Detailed transfer announcement

  • Initial listing fee: 50% of the Main Board initial listing fee

No streamlined process:

  • A sponsor must be appointed at least two months before the submission of the listing application
  • Publication requirements:

– Announcement of an application to transfer to Main Board
– Application proof
– 
Listing document
– 
Formal notice

  • Standard Main Board initial listing fee
  • Facilitative measures:

– dispensation from certain documentary requirements

– dispensation from the post-IPO lock-up requirement

– dispensation from the restriction on post-listing fund raising

– dispensation from  the requirement to appoint compliance adviser

 

Transitional arrangements in relation to GEM Transfer Applications

GEM Transfer Applications submitted before 15 February 2018

GEM Transfer Applications submitted during the three-year period starting from 15 February 2018 (the “Transitional Period”)

GEM Transfer Applications submitted after the end of the Transitional Period

  • Continue to be processed under the streamlined process
  • Only one renewal of such application permitted (which must be made within three calendar months from the date on which the application has lapsed)
  • Eligibility for the Main Board will be assessed in accordance with the Main Board Listing Rules in force immediately before 15 February 2018

 

GEM Transfer Applications submitted by (a) companies listed on GEM as at 16 June 2017 and (b) GEM applicants who have submitted a valid listing application as at 16 June 2017 and subsequently listed on GEM pursuant to such application (with only one renewal of such application permitted) (collectively the “Eligible GEM issuers”) during the Transitional Period are entitled to the following transitional arrangements:

(a)  eligibility will be assessed in accordance with the Main Board Listing Rules in force immediately before 15 February 2018; and

(b)  as to the transfer process,

(i)   applicants that have changed their principal businesses and/or controlling shareholders since listing on GEM will be required to appoint a sponsor to conduct due diligence and publish a listing document as a new listing applicant to the Main Board; or

(ii)     applicants that did not change their principal businesses and controlling shareholders since listing on GEM will only need to prepare a GEM transfer announcement in connection with its GEM transfer. Such applicants are required to appoint a sponsor to conduct due diligence in respect of their activities during the most recent full financial year and up to the date of the GEM transfer announcement to ensure that the information in the GEM transfer announcement is accurate, complete and not misleading.

(P.S. SFC has published an FAQ on its website which provides guidance on the due diligence that a sponsor is expected to conduct on a GEM transfer applicant that plans to issue a GEM transfer announcement under the transitional arrangements.)

GEM Transfer Applications made by GEM issuers that are NOT Eligible GEM Issuers on or after 15 February 2018 will be processed and their eligibility will be assessed under the amended Main Board Listing Rules.

Processed and eligibility assessed under the amended Main Board Listing Rules

 

  

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