On 16 June 2017, a public consultation was launched by The Stock Exchange of Hong Kong Limited (the “Exchange”) on a package of proposals to reform the Hong Kong’s listing regime through two separate papers:
- the New Board Concept Paper; and
- the Consultation Paper on the Review of the Growth Enterprise Market (GEM) and Changes to the GEM and Main Board Listing Rules (the “GEM/ Main Board Reform Consultation Paper”).
This client alert provides an overview of the proposals discussed in the New Board Concept Paper. Please refer to our client alert here for an overview of the proposals in the GEM/ Main Board Reform Consultation Paper.
Proposed introduction of a New Board for “New Economy” companies
The Exchange proposes to introduce a “New Board” to attract companies from “New Economy” sectors with one or more of the following characteristics that currently prohibit them from listing in the local bourse:
- pre-profit companies;
- companies with non-standard governance features; and
- Mainland Chinese companies that wish to list on the Exchange as a secondary listing venue.
What are “New Economy” companies?
The Exchange explains that “New Economy” companies for the purposes of listing on the New Board may encompass industries include biotechnology, health care technology, internet & direct marketing retail, internet software & services, IT Services, software, technology hardware, storage & peripherals.
In light of the evolving nature of technology and the interactive relationship between the traditional and new economic sectors, no fixed definition is proposed. The Listing Committee will retain the ultimate discretion to determine the listing eligibility for the New Board on a principle-based approach.
Two segments: New Board PRO and New Board PREMIUM
The Exchange proposes that the New Board be divided into two segments to cater to the different needs of different types of issuers and investors: New Board PRO and New Board PREMIUM.
See below a summary of the key features of the two segments:
Weighted voting rights structure permitted
As mentioned above, applicants to the New Board are allowed to adopt a WVR structure. As to how to regulate issuers with a WVR structure, the Exchange invites views on two possible approaches:
- “disclosure-based approach” – applicants should disclose that they have a WVR structure and the risks associated with the structure and other matters, such as the identities of WVR holders, their voting activities and the details of any transfers of WVR; or
- alternatively, in addition to the disclosure requirement, mandatory safeguards would be imposed for companies with WVR structures (e.g. restrictions on the types of persons that can hold WVR, the minimum equity that they must hold in the company on an ongoing basis and restrictions on the transfer of WVR to other persons, requiring a “sunset clause” providing for the WVR structure to fall away after a pre-determined period of time). The safeguards could vary according to whether the company is listed on New Board PREMIUM or PRO. Further, issuers already listed on a recognised US exchange with a good compliance record would be allowed to maintain their current WVR structures.
Vision for Hong Kong’s future listing regime
The diagram below illustrates the overall listing framework if the proposals contained in the New Board Concept Paper and the GEM/ Main Board Reform Consultation Paper are adopted:
- The Exchange briefly mentioned in the New Board Concept Paper that it is exploring the creation of a Private Market which would be a registration-only platform for unlisted companies with a market value below HK$150 million to register share transfers and disclose information.
- The Exchange proposes that there will not be fast-track migration mechanism between the New Board and the Main Board or GEM, or from New Board PRO to New Board PREMIUM.There will be a two-month public consultation period ending on 18 August 2017 for the New Board proposals. If there is market support for the proposals, the Exchange aims to finalise detailed New Board listing rules in early 2018.
When will the New Board be launched?
There will be a two-month public consultation period ending on 18 August 2017 for the New Board proposals. If there is market support for the proposals, the Exchange aims to finalise detailed New Board listing rules in early 2018.