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On 24 April 2018, The Stock Exchange of Hong Kong Limited (the “Exchange”) published the consultation conclusions and announced the new rules to: (a) permit listings of companies with weighted voting right (“WVR”) structures; (b) establish a new concessionary secondary listing route for Greater China and international companies that wish to secondary list in Hong Kong; and (c) permit listings of biotech companies that do not meet any of the Main Board financial eligibility tests.
The new rules broadly follow the proposals set out in the consultation paper published in February 2018, with a few amendments to reflect comments from consultation respondents on certain details. The new rules have come into effect on 30 April 2018, from which date companies seeking to list under the new rules may submit formal listing applications to the Exchange.
This client alert gives you a quick summary of the key points of the new Chapter 19C of the Main Board Listing Rules (as supplemented by the Exchange’s Guidance Letter HKEX-GL94-18) which sets out additional requirements and modifications to existing rules for the new concessionary secondary listing route for issuers (“Qualifying Issuers”) primary listed on the New York Stock Exchange LLC, Nasdaq Stock Market or the Main Market of the London Stock Exchange plc (and belonging to the UK Financial Conduct Authority’s “Premium Listing” segment) (each a “Qualifying Exchange”).
Suitability criteria and other conditions / qualifications for the new concessionary secondary listing route
| Innovative company | The Exchange would normally consider a Qualifying Issuer to be suitable for secondary listing under Chapter 19C if it is an innovative company.
The Exchange considers an innovative company for the purpose of the Listing Rules would normally be expected to possess more than one of the following characteristics:
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| Track record | A Qualifying Issuer must have a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange. |
| Market capitalisation at the time of secondary listing
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Non-Greater China Qualifying Issuers without WVR structure:
≥ HK$10 billion All other Qualifying Issuers: ≥ HK$40 billion ≥ HK$10 billion + revenue of ≥ HK$1 billion for themost recent audited financial year |
| No “centre of gravity” restriction for innovative companies | Greater China Qualifying Issuers that are innovative companies would not be subject to the “centre of gravity” restriction and would be allowed to seek a secondary listing in Hong Kong. |
Different requirements / concessions depending on whether the Qualifying Issuer has a centre of gravity in Greater China and whether it was primary listed on a Qualifying Exchange on or before 15 December 2017
See below a table summarising the application of requirements and concessions for three types of Qualifying Issuers: (a) Greater China issuers that were primary listed on a Qualifying Exchange on or before 15 December 2017 (“Grandfathered Greater China Issuers”); (b) those that were primary listed on a Qualifying Exchange afterwards (“Non-Grandfathered Greater China Issuers”); and (c) non-Greater China issuers:
| Grandfathered Greater China Issuers | Non-Grandfathered Greater China Issuers | Non-Greater China issuers | |
| Waivers that are currently automatically granted to companies seeking a secondary listing from compliance with certain Listing Rule requirements (e.g. notifiable transactions, connected transactions) | Apply
(Note: The automatic waivers will however cease to apply in the event of a permanent migration of the bulk of trading in the shares of these issuers to Hong Kong (i.e. if 55% or more of the total worldwide trading volume (by dollar value) of those shares (including the trading volume in depositary receipts issued on those shares) over the issuer’s most recent financial year, takes place on the Exchange’s markets), in which case, such companies would be given a 12-month grace period to comply with the applicable requirements.) |
Apply | |
| Equivalent shareholder protection requirements
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Required to demonstrate, to the Exchange’s satisfaction, how the domestic laws, rules and regulations to which it is subject and its constitutional documents, in combination, provide the key shareholder protection standards. For this purpose, the Exchange may require the issuer to amend its constitutional documents to provide them | Must, at the point of secondary listing, vary their constitutional documents in accordance with the requirements set out in the existing Listing Rules
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Required to demonstrate, to the Exchange’s satisfaction, how the domestic laws, rules and regulations to which it is subject and its constitutional documents, in combination, provide the key shareholder protection standards. For this purpose, the Exchange may require the issuer to amend its constitutional documents to provide them |
| Companies with WVR structures (if applicable) (P.S. Please refer to another client alert of 7 May 2018 regarding the WVR safeguards for primary listing under the new Chapter 8A of the Main Board Listing Rules) |
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Their WVR structures must conform to all primary listing requirements, including all ongoing WVR safeguards |
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| Viable Interest Entity structures / contractual arrangements to be used by companies to indirectly own / control their business subject to foreign ownership restrictions (“VIE structures”) (if applicable) |
Able to secondary list with their existing VIE structures in place and will not be required to demonstrate compliance with the draft PRC Foreign Investment Law, subject to (i) the provision of a PRC legal opinion that their VIE structures comply with PRC laws, rules and regulations and (ii) compliance with the disclosure requirements set out in the Exchange’s Listing Decision HKEX-LD43-3 | Their VIE structures must comply with all the requirements set out inExchange’s Listing Decision HKEX-LD43-3 | Able to secondary list with their existing VIE structures in place and will not be required to demonstrate compliance with the draft PRC Foreign Investment Law, subject to (i) the provision of a PRC legal opinion that their VIE structures comply with PRC laws, rules and regulations and (ii) compliance with the disclosure requirements set out in the Exchange’s Listing Decision HKEX-LD43-3 |
Applicability of the Codes on Takeovers and Mergers and Share Buy-backs (the “Codes”)
The Codes have been amended with effect from 30 April 2018 to reflect that a Grandfathered Greater China Issuer with a secondary listing on the Exchange will not normally be regarded as a public company in Hong Kong under the Codes and therefore the Codes do not apply to it, but where the bulk of trading in its migrates to Hong Kong such that it would be treated as having a dual-primary listing in Hong Kong, the Codes will apply to it.
Confidential filing
An applicant applying for secondary listing under Chapter 19C at the time of filing its listing application may make a confidential filing of its Application Proof.
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