Key Amendments to Chapter 37 of the Listing Rules (Debt Issues to Professional Investors only)

30 October 2020, Debt , Capital Markets, Legal Alert

By Kevin Tong, Icarus Yuen, Christine Li

On 21 August 2020, The Stock Exchange of Hong Kong Limited (Stock Exchange) published its consultation conclusions[1] on its proposals (contained in its consultation paper[2] published in December 2019) to review and enhance the listing regime for debt issues to professional investors only under Chapter 37 of the Rules Governing the Listing of Securities on the Stock Exchange (Chapter 37).

The amendments to Chapter 37 will come into effect on 1 November 2020. In relation to listing applications submitted before 1 November 2020 (with listing to take place on or before 31 January 2021), the listing qualifications and requirements under the existing Chapter 37 shall apply. In relation to listing applications submitted on or after 1 November 2020 (including listing applications submitted before 1 November 2020 with listing to take place after 31 January 2021), the listing qualifications and requirements under the new Chapter 37 shall apply.

The new continuing obligations under Chapter 37 will be effective from 1 November 2020 and will apply to both existing and new issuances of debt securities. Please refer to Part III below for further details.

 

I.     Key amendments to Chapter 37 applicable to new issuances

Item

Rule

Position under existing Chapter 37 

Position under new Chapter 37

Remarks

A.   Eligibility Requirements

1.

37.05

An issuer[3] must have minimum net assets of HK$100 million.

An issuer[3] must have minimum net assets of HK$1 billion (NAV Requirement).

 

2.

37.05 

All “State Corporations” are exempted to comply with the eligibility requirements, including the NAV Requirement pursuant to Rule 37.05 and the requirement to provide audited accounts for the past two years pursuant to Rule 37.06 (Issuer Eligibility Exemptions).

A “State Corporation” is defined as:

a company or other legal person which is directly or indirectly controlled or more than 50 per cent. of whose issued equity share capital (or equivalent) is beneficially owned by, and/or by any one or more agency of, a State or all of whose liabilities are guaranteed by a State”.

The definition of “State Corporation” has been amended to exclude entities which are controlled or majority owned by regional or local authority (Regional State Corporations).

The definition of “State Corporation” is amended as follows:

a company or other legal person which is directly or indirectly controlled or more than 50 per cent. of whose issued equity share capital (or equivalent) is beneficially owned by, and/or by any one or more agency of, a State (which does not include any regional or local authority) or all of whose liabilities are guaranteed by a State”.

All Regional State Corporations have to comply with the NAV Requirement pursuant to Rule 37.05 and the requirement to provide audited accounts for the past two years pursuant to Rule 37.06. 

The Issuer Eligibility Exemptions will continue to apply to corporations controlled or majority owned by central governments (which in the case of the PRC, should include PRC central ministries and State-owned Assets Supervision and Administration Commission of State Council (SASAC)).

The Stock Exchange may require a legal opinion from an issuer’s legal counsel to assess whether an issuer/guarantor is a State Corporation.

3. 

37.09A

No minimum issue size requirement.

A minimum issue size of HK$100 million (or equivalent in other currencies) will apply to each issuance of Chapter 37 debt securities.

The minimum issue size requirement does not apply to:

(a) 

tap issuances; and

(b) 

unlisted issuances under a listed Medium Term Note programme (MTN programme).

B.   Issuer Statement on Intended Investor Market

 

37.31A

No issuer statement is required.

Issuers are required to state explicitly on the front cover of a listing document the intended investor market in Hong Kong (i.e. professional investors only). 

An example of the issuer statement is as follows:

Notice to Hong Kong investors: The Issuer confirms that the [Bonds] are intended for purchase by professional investors only (as defined in the Securities and Futures Ordinance (Cap 571) and Rules made thereunder) and have been listed on The Hong Kong Stock Exchange Limited on that basis. Accordingly, the Issuer confirms that the [Bonds] are not appropriate as an investment for retail investors in Hong Kong. Investors should carefully consider the risks involved.”.

 

C.   Publication of Listing Document

 

37.39A

No publication of listing document is required.

Issuers are required to publish the listing document (in English or Chinese) on the website of the Stock Exchange (www.hkexnews.hk) on the date of listing.

For MTN programmes, this requirement applies to:

(i) 

the base listing document;

(ii) 

the supplementary listing document; and

(iii) 

the pricing supplement of each issue of debt securities under the programme listed on the Stock Exchange.

An appropriate disclaimer is required to be included in the announcement publishing the listing document to make clear that such publication would not amount to a public offer of securities.

This requirement does not apply to unlisted issuances under a listed MTN programme.

D.   Definition of “Professional Investors”

 

37.58

The definition of “Professional Investorexcludes “high net worth investors”.

A waiver application is required to be made to the Stock Exchange to extend the scope of “Professional Investor” to cover high net worth investors.

The definition of “Professional Investor” is amended to align with that definition under the Securities and Futures Ordinance to include high net worth investors.

Following the amendment to the definition of “Professional Investor”, the waiver application to the Stock Exchange to modify the definition is no longer required.

 
II.     Key amendments to Chapter 37 to streamline the application process

Item

Position under existing Chapter 37 

Position under new Chapter 37 

1.

Rules 37.35(e), 37.35(f)

Requirement to provide a copy of the constitutional documents of the issuer and, in respect of guaranteed issues, the guarantor, to the Stock Exchange.

Rule 37.35(k)

Requirement to provide a written statement by the issuer’s/guarantor’s duly authorised representative confirming:

  • due incorporation

  • capacity

  • authorisation to issue the debt securities (applicable for issuers only), approve the listing application of the debt securities, issue the listing document

2.

Rules 37.35(e), 37.35(f)

Requirement to submit last published financial statements of the issuer/guarantor.

Rule 37.35(m)

Requirement to submit audited financial statements of the issuer/guarantor to evidence fulfilment of eligibility requirements.

If the audited financial statements are disclosed in the listing document, then the audited financial statements are not required to be separately submitted.

 
III.     Summary of new continuing obligations applicable to both issuers and guarantors under Chapter 37 (applicable to both existing and new debt securities)

In addition to the existing continuing obligations under Rules 37.44 to 37.53 of Chapter 37, the new Chapter 37 has modified and introduced certain new continuing obligations that are applicable to both issuers and guarantors as set out below:
 

Item

Rule

New continuing obligations

1.

37.46A

New requirements on issuers and guarantors to:

(a) 

respond promptly to the Stock Exchange’s enquiries in relation to unusual movements in the price or trading volume of an issuer’s listed debt securities, the possible development of a false trading market of an issuer’s listed debt securities, or any other matters;

(b) 

if requested by the Stock Exchange, to publish announcements to inform the market or to clarify such matters set out in (a) above; and

(c) 

if the directors, having made reasonable enquiries, are not aware of any matter or development that is or may be relevant to the unusual trading movement of its listed debt securities or information necessary to avoid a false market, or any inside information, and if requested by the Stock Exchange, publish an announcement containing a statement to that effect.

2. 

37.47A

An issuer/guarantor is required to, as soon as reasonably practicable, announce any information which may have a material effect on its ability to meet its obligations under the listed debt securities.

3. 

37.47D

An issuer/guarantor is required to publish quarterly announcements of the development after trading suspension of its listed debt securities.

4. 

37.47E

New requirement on issuers and guarantors to, as soon as reasonably practicable, publish announcement relating to:

(a) 

a default on its listed debt securities (which would include, but not limited to, any cross-default of the listed debt securities triggered by a default on other obligations of the issuer or the guarantor); and

(b) 

appointment of a receiver or manager, winding-up, liquidation and/or equivalent action (including voluntary winding-up).

 

IV.     Guidance on disclosures in listing documents under Chapter 37

The Stock Exchange has also published a market guidance[4] on disclosures in listing documents for debt securities listed under Chapter 37 with specified “special features”. Such “special features” follow the Securities and Futures Commission’s classification of “complex products” posted on its website[5], which include perpetual or subordinated debt securities, or those with variable or deferred interest payment terms, extendable maturity dates, or those which are convertible or exchangeable or have contingent write down or loss absorption features, or those with multiple credit support providers and structures.

The market guidance provides a non-exhaustive list of the types of disclosure that issuers should include in a listing document, taking into consideration the customary expectation of the intended investor market, the distinctive features of each type of special feature and the associate risks of investing in products with such type of special feature.

 

 

 

 


[1]  https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/December-2019-Chapter-37-Debt-Issues/Conclusions-(Aug-2020)/cp201912cc.pdf?la=en

[2] https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/December-2019-Chapter-37-Debt-Issues/Consultation-Paper/cp201912.pdf

[3] Except for Supranationals, State Corporations (both as defined in Chapter 37) and companies whose equity securities are listed on the Stock Exchange or another stock exchange. Please also refer to the Stock Exchange’s proposed amendment to the definition of “State Corporation” – see Item 2.

[4] https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Rules-and-Guidance/Other-Resources/Debt-Securities/20200821.pdf