Russia is now included in the list of “acceptable jurisdictions” by The Stock Exchange of Hong Kong Limited1 (the “HKEx”). The HKEx also published a “Country Guide – Russia”2 (the “Russia Guide”) relating to companies incorporated in Russia. Russian companies seeking to list in Hong Kong are now able to list their depositary receipts (“DRs”) on the Main Board of the HKEx, which provides an opportunity for Russian companies to access a wider pool of Chinese and international investors.
Recognized and acceptable jurisdictions
The Rules Governing the Listing of Securities on the HKEx (the “Listing Rules”) only consider Hong Kong, the People’s Republic of China, the Cayman Islands and Bermuda for the purpose of eligibility for listing on the HKEx as “recognized jurisdictions”.
The HKEx can also include a jurisdiction in the list of acceptable jurisdictions once it is satisfied that such jurisdiction provides for shareholder protection standards equivalent to those in Hong Kong. As at the date of this eUpdate, the Listing Committee of HKEx has approved, in principle, 24 acceptable jurisdictions of incorporation (“Acceptable Jurisdictions”).3
The HKEx publishes a country guide for each Acceptable Jurisdiction setting out guidance on how companies incorporated in Acceptable Jurisdictions can meet the HKEx’s requirements for equivalent shareholder protection standards if there are differences between laws and practices in the company’s jurisdictions and the Listing Rules.
In September 2013, the HKEx and the Securities and Futures Commission4 (the “SFC”) issued a new Joint Policy Statement Regarding Listing of Overseas Companies5 (the “2013 JPS”) with the objective to assist overseas companies seeking either a primary or secondary listing in Hong Kong.
The 2013 JPS sets out two requirements for overseas companies to be eligible for listing on the HKEx:
- an overseas company must demonstrate that the securities regulator in the overseas company’s jurisdiction of incorporation and place of central management and control (if these are different) has either:
o signed the International Organization of Securities Commission’s Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (the “IOSCO Memorandum”); or
o entered into a bi-lateral agreement with the SFC for mutual assistance and exchange of information; and
- an overseas company must come from an Acceptable Jurisdiction.
Russia as Acceptable Jurisdiction
As at the date of this eUpdate, only two companies with substantial assets in Russia were listed on the HKEx, and neither was incorporated in Russia:
- United Company RUSAL Plc:
o incorporated in Jersey;
o “the world’s largest producer of aluminium”;6 and
o listed on the HKEx under code 486 since January 27, 2010 (primary listing).
- IRC Ltd.:
o incorporated in Hong Kong;
o engaged in exploring, developing and operating industrial commodity projects in the Russian Far East and the north-eastern region of the People’s Republic of China;7 and
o listed on the HKEx under code 1029 since October 21, 2010 (primary listing).
In February 2015, the Central Bank of Russia8 (the “CBR”) signed the IOSCO Memorandum, thereby fulfilling the first requirement set forth in the 2013 JPS.9 Thereafter, the HKEx included Russia in the list of Acceptable Jurisdictions and issued the Russia Guide in January 2016, i.e. the second requirement set forth in the 2013 JPS was also fulfilled.
No Russian company (which complies with the 2013 JPS) has yet listed on the HKEx.
The Russia Guide is applicable to Russian companies applying for primary and secondary listings on the Main Board of the HKEx. The Russia Guide must be read in conjunction with the Listing Rules and the 2013 JPS. In addition, on submission of their listing applications, Russian companies must confirm to the HKEx that the Russian laws, regulations and market practices set out in the Russia Guide remain applicable, or provide details of any changes. They must also inform the HKEx of any other Russian laws, regulations and market practices that are relevant to their particular circumstances.
The Russia Guide sets out the HKEx’s approach to some differences between Russian laws and practices and the Listing Rules:
|Approval of auditors’ remuneration||A Russian company must make full disclosure of the auditors’ remuneration and require the board of directors’ approval of auditors’ remuneration to be based on the recommendation of an independent body, such as an audit committee, and an advisory vote from shareholders (i.e. “independent shareholders’ opinion”).|
|Right to speak and vote at general meetings||This right must be set out in a Russian company’s constitutional documents.|
|Appointment of proxies or corporate representatives to attend general meetings||A Russian company must make full disclosure of the applicable Russian law and inability of holders of DRs to attend general meetings.|
|Directors’ responsibilities||Each director of a Russian company must contractually undertake to the company and the HKEx to accept full responsibility, collectively and individually, for the company’s compliance with the Listing Rules.|
|Requirement of shareholders’ approval of directors’ service contracts||The HKEx is ready to grant a waiver from compliance with the Listing Rules in this respect as under Russian law the directors must be re-elected on an annual basis at annual general meetings of shareholders.|
|Approval of notifiable transactions and connected transactions||A Russian company must amend its constitutional documents to provide for certain approvals in line with the Listing Rules.|
A Hong Kong depositary participating in a Russian company’s DR program must be a suitably authorized and regulated financial institution acceptable to the HKEx.
A Russian company’s listing document must include full details of the rights and obligations of DR holders, associated risks and details of the clearing and settlement arrangements.
The governing law of the deposit agreement must be either Hong Kong law or the one that is generally used in accordance with international practice. A Russian company must consult the HKEx on the terms of the deposit agreement at an early stage.
|Subject to the confirmation of the SFC, the Russian mandatory share buy-backs are exempt from the Hong Kong Share Buy-Backs Code, and a Russian company must disclose in its listing document the respective requirements for share buy-back under both jurisdictions and seek the SFC’s approval / confirmation prior to share buy-backs.|
|Constitutional documents||A Russian company must make certain amendments to its constitutional documents to bring them in compliance with the Listing Rules.|
|Accounting and auditing||The HKEx recognizes either the Hong Kong Financial Reporting Standards or the International Financial Reporting Standards. If a Russian company is willing to use the Russian generally accepted accounting practices and auditing standards, it must prove that they are comparable to those recognized in Hong Kong.|
A Russian company must make disclosure of applicable Russian taxation rules in its listing document.
Russian legal requirements
Due to Russian legal requirements, Russian companies seeking to list in Hong Kong must:
- be incorporated in the form of a public joint stock company (“PJSC”)10;
- be listed on a Russian stock exchange.11 The CBR will only grant approval for a Russian company to list overseas if the company is already listed on a Russian stock exchange;
- list in the form of DRs on the Main Board of the HKEx. Shares of a PJSC may only exist in uncertificated form12, and a PJSC seeking to list overseas must list in the form of DRs. The HKEx’s framework allows listing of DRs on its Main Board but not on its Growth Enterprise Market;
- receive the CBR’s prior approval for placement and/or circulation of securities outside Russia and ensure that13:
o a number of shares that can be offered for placement / circulated outside Russia cannot increase 25% of the total number of issued and outstanding
shares of the same category; and
o no more than 50% of the total number of shares offered for placement / sale can be placed / sold outside Russia.
The CBR can take up to 30 calendar days to issue an approval provided that all required documents are submitted. Among other documents, a Russian company must submit to the CBR a certified copy of a deposit agreement and an evidence of opening a depo account for the depositary program to track rights to the shares proposed to be traded outside of Russia;
- have in place all required corporate approvals14, including
o approval of listing – by shareholders at a general meeting by a simple majority of votes of shareholders present at the meeting (unless the company’s charter defers this matter to a board of directors)15; and
o approval of increase of the company’s share capital by placement of additional shares – by shareholders at a general meeting by a simple
majority of votes of shareholders present at the meeting (unless the company’s charter defers this matter to a board of directors);
- ensure that issuance of underlying shares complies with Russian corporate and securities laws;16 and
- comply with the disclosure requirements set forth in Russian securities laws17 and listing rules of a Russian stock exchange.
The above list is not conclusive.
Inclusion of Russia in the HKEx’s list of Acceptable Jurisdictions and some other recent regulatory initiatives (such as an agreement for the avoidance of double taxation entered into between Russia and Hong Kong18 and a memorandum of understanding entered into between the Hong Kong International Arbitration Centre and the Russian Arbitration Association19) demonstrate that the economic and trade connections between Hong Kong and Russia are becoming stronger.
With the formal recognition of Russia as an Acceptable Jurisdiction and the issuance of the Russia Guide, Hong Kong may now be seen as an attractive listing alternative for Russian companies.
There may be technical difficulties to listing given the differences between the Russian and Hong Kong legal systems and rules, and an early engagement with sponsors, counsel and the HKEx may be helpful.