The Stock Exchange of Hong Kong Limited (“HKSE”) announced on 24 April 2018 the addition of three new chapters of the Rules Governing the Listing of Securities on HKSE (the "Listing Rules") to facilitate listing of high growth companies from emerging and innovative sectors on the Main Board. The new chapters, which take effect today, are:
Chapter 8A on WVR;
Chapter 18A on Biotech Companies; and
Chapter 19C on Secondary Listings of Qualifying Issuers (i.e. issuers primarily listed on New York Stock Exchange, Nasdaq Stock Market or the Main Market of the London Stock Exchange “Premium Listing”, each a "Qualifying Exchange").
What are the qualifying criteria for the new secondary listing regime?
(a) an "innovative company"; (b) primary listed on a Qualifying Exchange, with good record of compliance for at least two full financial years; and (c) market capitalisation of at least HK$10 billion at the time of secondary listing in Hong Kong.
For applicant (i) with a “centre of gravity” in Greater China; and/or (ii) with a WVR structure will be required to have a minimum revenue of HK$1 billion in its most recent audited financial year if its market capitalisation is less than HK$40 billion.
This is important to Qualifying Issuers with a “centre of gravity” in Greater China as they were not eligible for secondary listing before the new Chapter 19C takes effect.
What is the significance of 15 December 2017 (the "Cut-off Date")?
It is the date HKSE published the New Board Concept Paper Conclusions in which the new secondary listing concessionary route was announced.
Under Chapter 19C, only issuers listed on Qualifying Exchange before the Cut-off Date, whose centre of gravity are in Greater China (the "Grandfathered Greater China Issuers"), will enjoy the concessions in connection with the following:
(a) Equivalence requirement: Appendix 3 and Appendix 13 of the Listing Rules in respect of the issuer's constitutional document will not apply. In other words, it is not mandatory for Grandfathered Greater China Issuers to amend constitutional documents to meet Hong Kong's key shareholder protection standards and they may adopt the methods specified in HKSE's jurisdictional guidance.
(b) VIE structures (see definition box): Grandfathered Greater China Issuers will be able to secondary list with their existing VIE structures in place subject to the provision of a PRC legal opinion (that their VIE structures comply with the relevant PRC laws, rules and regulations) and additional disclosure.
(c) WVR safeguards: Grandfathered Greater China Issuers will be able to secondary list with their existing WVR structures and would not have to comply with the on-going WVR safeguards under Chapter 8A (such as the restriction not to increase the proportion of WVR shares after listing; or the requirement for certain resolutions to be subject to voting on a one vote per share basis) except for those that are subject to disclosure requirements.
Non-grandfathered Greater China Issuers (i.e. listed on a Qualifying Exchange after the Cut-off Date) will have to comply with existing Listing Rules requirements in relation to key shareholder protection standards, VIE structures and WVR safeguards.
Must a Chapter 19C applicant, as with other listing applicant, submit an application proof for publication at HKSE's website?
No. HKSE has clarified that new applicant applying for a secondary listing under Chapter 19C would be entitled to make a confidential filing of its application proof in accordance with Practice Note 22 of the Listing Rules.
When will the bulk of trading be considered migrated to Hong Kong permanently and what is its significance?
HKSE will regard the majority of trading in the issuer's shares to have been moved to Hong Kong on a permanent basis if 55% or more of the total worldwide trading volume (by dollar value) of those shares (including the trading volume in depositary receipts issued on those shares) over the issuer’s most recent financial year, takes place on the HKSE’s markets.
When the bulk of trading is considered migrated to Hong Kong on a permanent basis, the codified waivers granted to issuers with a “centre of gravity” in Greater China under Chapter 19C would cease to apply. These issuers would, on a case-by-case basis, be granted only waivers that are commonly granted to dual-primary listed companies such as those relating to reporting accountants’ independence/qualifications and company secretary qualifications/experience.
"VIE structure" means “Variable Interest Entity Structures” or “Structured Contracts” that allow a foreign company to control and receive the economic benefits of a PRC company owning assets or operating in an industry sector that is subject to foreign investment restrictions.