Exchange Seeks Views on Reforms to Enhance Listing Regime for Overseas Issuers

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  • Streamlined requirements with a single set of shareholder protection standards to ensure consistent protection is provided to all investors
  • Expansion of secondary listing regime for overseas-listed Greater China companies from traditional sectors without weighted voting rights
  • Greater flexibility for issuers seeking dual-primary listings whilst maintaining their existing weighted voting right structures and variable interest entity structures
  • Market feedback sought during two-month consultation period

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Wednesday) published a consultation paper seeking public feedback on proposals to enhance and streamline the listing regime for overseas issuers1. 

In its consultation, the Exchange is seeking views on: streamlining requirements for overseas issuers, whilst continuing to ensure robust shareholder protection standards remain; expanding its secondary listing regime to welcome overseas-listed Greater China companies in traditional sectors to its markets; allow eligible issuers to dual-primary list while keeping their existing weighted voting right structures and variable interest entity structures.

“One of the initiatives in HKEX’s strategic plan is to continue to develop Hong Kong as a listing and capital raising hub for major global and regional companies, looking to fund their growth through either a primary or secondary basis,” said HKEX Head of Listing, Bonnie Y Chan.

“Our listing reforms in 2018 have already achieved tremendous success in adding vibrancy and diversity to Hong Kong’s listed company ecosystem. We believe our latest proposals to streamline requirements and enhance our listing regime will attract more international and Mainland companies looking to benefit from Hong Kong’s liquid financial markets, whilst ensuring that Hong Kong maintains the quality of the market and that the high standards of shareholder protection that Hong Kong is known for are maintained,” said Ms Chan.

The key proposals in the consultation are set out below:

Streamlined Requirements with a Single Set of Shareholder Protection Standards to Ensure the Consistent Protection is Provided to All Investors

All issuers (including secondary listed issuers) would be required to demonstrate how they comply with one common set of core shareholder protection standards (Core Standards). These Core Standards include requirements that the issuer must:

  • hold an ordinary general meeting annually and provide shareholders with the right to convene an extraordinary general meeting;
  • enable shareholders to remove directors with a simple majority vote; and
  • obtain a super-majority shareholder vote to approve: a change to class rights; a change to its constitutional documents; and its winding-up.

These Core Standards would ensure that all Hong Kong shareholders are afforded the same consistent protection irrespective of the place of incorporation of a listed issuer or the nature (primary or secondary) of the issuer’s listing.

Amendment of Secondary Listing Requirements for Greater China Issuers without Weighted Voting Rights

Under the proposals, Greater China Issuers2 without a weighted voting right structure could secondary list on the Exchange:

  • without demonstrating that they were an “innovative company” – this would be required only of issuers with weighted voting right structures; and
  • by demonstrating a lower minimum market capitalisation at listing than currently required (but still higher than that required for primary listing).3

The Exchange would have the power to find such applicants unsuitable for listing in Hong Kong, if it believed that their application was an attempt to circumvent the Listing Rules applicable to a primary listing, by applying, for example, the test set out in the Listing Rules on whether a transaction or a series of transactions constitute a reverse takeover of the applicant.

Greater Flexibility for Issuers to Dual-Primary List with their Existing Weighted Voting Right Structures and Variable Interest Entity Structures

Grandfathered Greater China Issuers4 and Non-Greater China Issuers5 that seek to dual-primary list on the Exchange would be able to retain their existing weighted voting rights, and variable interest entity, structures6 without changing them to meet the full requirements of the Exchange’s Listing Rules and guidance.

These issuers would need to have a track record of good regulatory compliance, of at least two full financial years on a Qualifying Exchange7, and meet the higher minimum market capitalisation requirements applicable to an applicant with weighted voting rights.8

They would also be required to meet all other initial and ongoing requirements applicable to a primary listing (eg Listing Rule requirements regarding 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.

Currently, if Grandfathered Greater China Issuers secondary list in Hong Kong, and later see the majority of trading of their securities migrates to the Exchange’s markets on a permanent basis, they will be regarded as dual-primary listed in Hong Kong and have to fully comply with the Listing Rules, but are allowed to retain their existing weighted voting right or variable interest entity structures. Non-Greater China Issuers are not subject to this trading migration requirement.

Other Proposals

The consultation paper published today also contains several other proposals to enhance, codify and streamline existing requirements for overseas issuers, including:

  • the consolidation of requirements for overseas issuers into Chapter 19 (for primary listing) and Chapter 19C (for secondary listing), with one guidance letter;
  • the codification of some conditional common waivers for dual-primary listings and secondary listings; and
  • guidance on the application of waivers following a de-listing from an overseas exchange of primary listing.

The Exchange invites market feedback on the proposals. The deadline for responding to the Consultation Paper is 31 May 2021.

The Consultation Paper is available on the HKEX website.

Notes:

  1. Issuers that are not incorporated or otherwise established in Hong Kong or the People’s Republic of China.
  2. Overseas issuers with a centre of gravity in Greater China primary listed on a Qualifying Exchange7.
  3. Currently, Greater China Issuers without a weighted voting right structure applying for secondary listing on the Exchange must have a minimum market capitalisation at the time of listing of at least either:
    (a) $40 billion; or
    (b) $10 billion and revenue of at least $1 billion for their most recent audited financial year.
    In addition, these applicants must demonstrate a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange7.
    Under the proposals, these issuers would be required, instead, to have a minimum market capitalisation at the time of listing of at least:
    (a) $3 billion if they could demonstrate a track record of good regulatory compliance of at least five full financial years on a Qualifying Exchange; or
    (b) $10 billion if they could demonstrate a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange.
  4. “Grandfathered Greater China Issuers” are issuers with a centre of gravity in Greater China that primary listed on a Qualifying Exchange on or before either: (a) 15 December 2017 – if they have individual weighted voting right structures; or (b) 30 October 2020 – if they have corporate weighted voting right structures (as defined in the Exchange’s Conclusions to its Consultation Paper on Corporate WVR Beneficiaries).
  5. “Non-Greater China Issuers” are issuers with a centre of gravity outside of Greater China primary listed on a Qualifying Exchange.
  6. The Exchange’s requirements regarding these variable interest entity structures are set out in Guidance Letter HKEX-GL77-14: “Guidance on listed issuers using contractual arrangements for their businesses” and Listing Decision HKEX-LD43-3.
  7. The “Qualifying Exchanges” are: 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).
  8. These issuers must have a market capitalisation of at least $40 billion at the time of listing; or a market capitalisation of at least $10 billion at the time of listing and revenue of at least $1 billion for the most recent audited financial year.

Source: HKEx