Hong Kong Stock Exchange proposes to enhance the listing regime for overseas issuers

On 31 March 2021, The Stock Exchange of Hong Kong Limited (Exchange) published a consultation paper seeking public feedback on its proposals to enhance and streamline the existing listing regime for overseas issuers[1], including proposals to:

  • streamline shareholder protection standards by introducing a single set of core standards for all issuers;
  • allow issuers with a centre of gravity in Greater China primary listed on a Qualifying Exchange[2] (Greater China Issuer) on or before 15 December 2017 (Grandfathered Greater China Issuer) and issuers that are not Greater China Issuers with a primary listing on a Qualifying Exchange (Non-Greater China Issuer) to seek a dual primary listing while retaining their existing weighted voting right (WVR) structures and variable interest entity (VIE) structures; and
  • lower the requirements for Greater China Issuers from traditional sectors without WVR structure to seek a secondary listing on the Exchange.

Consultation period will end on 31 May 2021.

The key proposals are summarised below:

Shareholder protection standards

Current regime

The Rules Governing the Listing of Securities on the Exchange (Listing Rules) require an overseas issuer to demonstrate that its jurisdiction provides shareholder protection standards at least equivalent to those of Hong Kong.

Issuers incorporated in Bermuda, the Cayman Islands and the PRC (together, Recognised Jurisdictions) are regarded as meeting this requirement as long as they amend their constitutional documents in accordance with the respective parts in Appendix 13 to the Listing Rules to make up for the shortfalls in the shareholder protection standards of the relevant jurisdiction.

Other than the Recognised Jurisdictions, the Exchange has accepted 28 jurisdictions as an issuer’s place of incorporation eligible for listing in Hong Kong (Acceptable Jurisdictions) as they meet the shareholder protection standards set out in the joint policy statement regarding the listing of overseas companies first published jointly by the Exchange and the Securities and Futures Commission in 2007 (last amended on 30 April 2018) (JPS).

In addition, all issuers (except for Grandfathered Greater China Issuers and Non-Greater China Issuers) must ensure that their constitutional documents conform with the provisions set out in Appendix 3 to the Listing Rules, which contain additional shareholder protection standards that the Exchange considers necessary.

Proposed regime

The Exchange proposes to streamline the shareholder protection standards that issuers are required to provide into one common set of 14 core shareholder protection standards (Core Standards) for all issuers. Accordingly, the concepts of “Recognised Jurisdictions” and “Acceptable Jurisdictions” will be removed.

The Core Standards will cover the most fundamental shareholders’ rights relating to the notice and conduct of shareholders’ meetings, approval of important matters, members’ right to requisition a meeting, remove directors, vote, speak and appoint proxies/corporate representatives, auditors, appointment of directors to fill casual vacancies and inspection of shareholders’ register, etc. which are based on standards set out in the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) or already required under the Listing Rules.

Dual primary listing

Current regime

Grandfathered Greater China Issuers and Non-Greater China Issuers with WVR structures not in compliance with Chapter 8A of the Listing Rules and/or VIE structures not in compliance with HKEX Listing Decision LD43-3 (Non-compliant WVR and/or VIE structures) cannot retain such structures while applying for dual primary listing directly.

Proposed regime

Grandfathered Greater China Issuers and Non-Greater China Issuers with Non-compliant WVR and/or VIE Structures may apply directly for a dual primary listing while retaining the Non-compliant WVR and/or VIE Structures, as long as they meet the eligibility and suitability requirements of Chapter 19C of the Listing Rules for issuers with a WVR structure.

These issuers would need to have a track record of good regulatory compliance, of at least two full financial years on a Qualifying Exchange, and meet the higher minimum market capitalisation requirements applicable to an applicant with WVR. They would also be required to meet all other initial and ongoing requirements applicable to a primary listing (e.g. notifiable and connected transactions) as well as complying with the requirements that they are already subject to, under the laws and rules of their overseas primary listing jurisdiction.

Secondary listing

 

Current regime

Proposed regime

Less restrictive requirements for Greater China Issuers seeking a secondary listing on the Exchange

Greater China Issuers without WVR structure seeking a secondary listing must:

demonstrate that they are “Innovative Companies” [3]; and

-

have a minimum market capitalisation at listing of HK$40 billion (or HK$10 billion with revenue of HK$1 billion in the most recent audited financial year)

Greater China Issuers without WVR structure seeking a secondary listing:

are no longer required to be “Innovative Companies”; and

-

have the option of meeting a minimum market capitalisation at listing of either (i) HK$3 billion (if the issuer has a track record of good regulatory compliance of at least five full financial years on a Qualifying Exchange); or (ii) HK$10 billion (if the issuer has a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange)

Codification and consolidation of requirements 

There are currently two routes to secondary listing on the Exchange:

the JPS (only available to overseas issuers that do not have a centre of gravity in Greater China); and

-

Chapter 19C of the Listing Rules

Codification and consolidation of requirements of the two routes into Chapter 19C of the Listing Rules 

Waivers of general effect granted by the Exchange to issuers seeking a secondary listing on the Exchange (where no waiver application is required) set out in the JPS or exceptions to the Listing Rules as set out in Chapter 19C of the Listing Rules (Automatic Waivers) 

Eligibility requirements for Automatic Waivers under the JPS:

listing on a Recognised Stock Exchange[4] 

five years’ good compliance record

minimum expected market capitalisation of US$400 million (approximately HK$3.1 billion)

(For Greater China issuers only) if the majority of trading in a Greater China Issuer’s listed shares migrates to the Exchange’s markets on a permanent basis, the Exchange will regard the issuer as having a dual primary listing and consequently the Automatic Waivers will no longer apply to such issuer (Trading Migration Requirement)

Codification of eligibility requirements for Automatic Waivers under the JPS with minor modifications:

the compliance record requirement changed from “five years” to “five full financial years

the minimum expected market capitalisation requirement changed to HK$3 billion

All secondary listed issuers are subject to the Trading Migration Requirement

De-listing from the stock exchange on which the secondary listed issuer is primary listed

The Listing Rules are silent on:

the application of Automatic Waivers; or

whether a Grandfathered Greater China Issuer or a Non-Greater China Issuer can retain its Non-compliant WVR and/or VIE Structures,

if the issuer de-lists from the overseas exchange on which it was primary listed

  • An issuer will be regarded as having a primary listing on the Exchange upon its de-listing from the stock exchange on which it is primary listed

  • The Exchange may, on a case by case basis, exercise its discretion to grant a time-relief waiver, suspend trading of the issuer’s shares or impose other measures as it considers necessary for the protection of investors and the maintenance of an orderly market

  • A Grandfathered Greater China Issuer or a Non-Greater China Issuer is allowed to retain its Non-compliant WVR and/or VIE Structures (subsisting at the time of its secondary listing in Hong Kong) if it de-lists from the Qualifying Exchange on which it is primary listed

 
 
 
 


[1] “Overseas issuers” includes issuers which are not incorporated or otherwise established in Hong Kong or the People’s Republic of China (PRC).

[2] “Qualifying Exchange” means 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).

[3] “Innovative Company” is a company that the Exchange considers to have demonstrated the relevant characteristics set out in HKEX Guidance Letter GL94-18.

[4] “Recognised Stock Exchange” is the main market of a stock exchange the Exchange has recognised as being one where the shareholder protection standards are at least equivalent to those provided in Hong Kong as set out under the JPS. The Qualifying Exchanges are also Recognised Stock Exchanges.