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 GEM/ Main Board Reform Consultation Paper. Please refer to our client alert here for an overview of the proposals discussed in the New Board Concept Paper.
Proposals to reform GEM
The Exchange proposed to reform GEM in the following aspects:
- re-positioning GEM as a stand-alone board for small to mid-size companies (instead of as a “stepping stone” to the Main Board for emerging companies), and hence removing the streamlined process for the transfer of a GEM listing to the Main Board;
- raising the admission financial criteria (including the cash flow requirement and the minimum market capitalisation requirement);
- introducing a mandatory public offering mechanism of at least 10% of the total offer size for all GEM IPOs, and aligning the GEM Listing Rules with the Main Board Listing Rules in respect of placings to selected persons and allocation of offer shares between the public and placing tranches; and
- imposing a longer post-IPO lock-up requirement on controlling shareholders.
The table below summaries the current regime and the proposed changes:
Note: The proposed changes, if adopted, are expected to come into effect on a date which is approximately six months from the date of the GEM/ Main Board Reform Consultation Paper (the “Amendment Effective Date”). All listing applications / Transfer Applications submitted on or before the Amendment Effective Date will be processed under the current GEM Listing Rules (with only one refreshed listing application / Transfer Application permitted after the Amendment Effective Date).
Proposed amendments of the Main Board listing requirements
The proposed reforms to GEM discussed above, if adopted, would bring the GEM listing requirements closer to or exceeding the equivalent requirements of the Main Board. In order to ensure that there is a clear distinction between the Main Board and GEM, the Exchange proposes to amend certain Main Board listing requirements to preserve the Main Board’s position as a market for larger companies:
Note: The proposed changes, if adopted, are expected to come into effect on the Amendment Effective Date. However, all listing applications submitted on or before the Amendment Effective Date will be processed under the current Main Board Listing Rules (with only one refreshed listing application permitted after the Amendment Effective Date).
Transitional arrangements in relation to transfer of GEM listings to the Main Board
For companies listed on GEM and GEM applicants which have submitted a valid listing application as at the date of the GEM/ Main Board Reform Consultation Paper and successfully listed on GEM subsequently (with only one refreshed application after the date of this paper permitted) (collectively the “Eligible GEM issuers”), the Exchange proposes to put in place transitional arrangements to allow sufficient time for them to comply with the more stringent rules for Transfer Applications.
For Transfer Applications submitted by the Eligible GEM Issuers during a period of three years from the Amendment Effective Date:
(a) eligibility will be assessed in accordance with the current Main Board Listing Rules; and
(b) as to the transfer process,
(i) where there is NO change in controlling shareholder / principal business, the Eligible GEM Issuers will only be required to:
- publish a transfer announcement with key disclosures including a concise update of the issuer’s affairs for the last full financial year and up to announcement date; and
- appoint a sponsor to conduct due diligence for the last full financial year and up to announcement date.
(ii) where there is change in controlling shareholder / principal business, the Eligible GEM Issuers will be required to:
- publish a prospectus-standard listing document; and
- appoint a sponsor to conduct due diligence as if the applicant is a new Main Board listing applicant.
Transfer Applications made by GEM issuers which are NOT Eligible GEM Issuers after the Amendment Effective Date will be processed and eligibility assessed under the revised Main Board Listing Rules.
The Exchange aims to publish its conclusions on the GEM/ Main Board Reform Consultation Paper in late 2017 following a two-month consultation ending on 18 August 2017.
As mentioned above, the proposed changes to the GEM / Main Board Listing Rules, if adopted, are expected to come into effect on a date which is approximately six months from the date of the GEM/ Main Board Reform Consultation Paper, that is, mid-December 2017 or January 2018.
While it is uncertain whether the proposed changes will be adopted following public feedback, it is likely, as is also anticipated by the Exchange, that there will be an influx of listing applications / Transfer Applications in the coming months when such applications would still be processed under the current less stringent rules. Companies planning a listing on the Exchange or GEM issuers planning a transfer to the Main Board should be prepared that the Exchange’s vetting period for their of listing applications / Transfer Applications during this period may be longer.