In brief

The Stock Exchange of Hong Kong Limited ("Exchange") has published a consultation paper ("Consultation Paper") seeking market feedback on the proposed Listing Rules amendments to, among other things: (a) streamline the listing regime for overseas issuers which are incorporated outside of Mainland China (PRC) and Hong Kong ("Overseas Issuers"), including those with a centre of gravity in Greater China; (b) allow Grandfathered Greater China Issuers and Non-Greater China Issuers (as defined below) to dual-primary list while retaining their existing noncompliant weighted voting right (WVR) structures and/or variable interest entity (VIE) structures; and (c) expand the secondary listing regime to welcome Overseas Issuers without any WVR structure in traditional sectors. The consultation will close on 31 May 2021.


In more detail

  Current regime Proposed regime

1. Shareholder protection standards

  • The listing requirements for Overseas Issuer are set out in the Listing Rules, the Joint Policy Statement regarding the Listing of Overseas Companies ("JPS") and the Country Guides, which are rather complex and difficult to navigate. The shareholder protection standards for recognised jurisdictions and acceptable jurisdictions are inconsistent.
  • An Overseas Issuer must demonstrate that its jurisdiction of incorporation provides shareholder protection standards at least equivalent to those of Hong Kong ("Equivalence Requirement").
  • An overseas Issuer must be incorporated in either:

(i)    a recognised jurisdiction, namely, Bermuda, the Cayman Islands and the PRC ("Recognised Jurisdiction(s)"). Issuers incorporated in these jurisdictions are regarding as meeting the Equivalence Requirement as long as they amend their constitutional document to comply with the applicable provisions of Appendix 13 to the Listing Rules to make up for the shortfalls in the shareholder protection standards of the relevant jurisdiction; or

(ii)   an acceptable jurisdiction. Upon application by an Oversea Issuer and approval by the Exchange, a jurisdiction outside of the Recognised Jurisdictions providing the key shareholder protection standards and meeting the regulatory co-operation requirement ("Regulatory Co-operation Requirement") set out under the JPS will be regarded as an acceptable jurisdiction ("Acceptable Jurisdiction(s)"). There are currently 28 Acceptable Jurisdictions.

  • All issuers must comply with Appendix 3 to the Listing Rules.
  • The Exchange proposes to streamline the shareholder protection standards by replacing the requirements set out under Chapter 19C of and Appendices 3 and 13 to the Listing Rules and the JPS by a single set of core shareholder protection standards applicable to all issuers, regardless of their places of incorporation. The core standards are based on the requirements set out in the Hong Kong Companies Ordinance and the Listing Rules.
  • The proposed core shareholder protection standards cover the most fundamental shareholders’ rights relating to the following:
    • removal of directors;
    • appointment of directors to fill casual vacancies;
    • timing and notice of general meetings;
    • rights to speak and vote at general meetings;
    • restriction on voting;
    • right to convene an extraordinary general meeting;
    • variation of class rights;
    • amendment of constitutional documents;
    • appointment, removal and remuneration of auditors;
    • appointment of proxies/corporate representatives;
    • inspection of Hong Kong branch register; and
    • voluntary winding up.
  • As a result, the Equivalence Requirement will be repealed and the concepts of “Recognised Jurisdictions” and “Acceptable Jurisdictions” will be removed.
  • The Exchange proposed to codify the Regulatory Co-operation Requirement into Chapter 8 of the Listing Rules which will become applicable to all issuers. 

2. Dual primary listing of Grandfathered Greater China Issuers and Non-Greater China Issuers with Non-compliant WVR and/ or VIE Structures

  • If: (a) an issuer with a centre of gravity in Greater China and primary listed on qualifying exchanges (i.e. NYSE, NASDAQ and LSE Main Market) ("Qualifying Exchange(s)") on or before 15 December 2017 ("Grandfathered Greater China Issuer") or (b) an issuer with a centre of gravity outside of Greater China and primary listed on a Qualifying Exchange ("Non-Greater China Issuers") applies for a dual primary listing, they are not allowed to retain its (i) WVR structure that does not comply with Chapter 8A of the Listing Rules and/or (ii) VIE structure that does not comply with Listing Decision LD43-3 ("Non-compliant WVR and/ or VIE Structures").
  • However, a Grandfathered Greater China Issuer with Non-compliant WVR and/or VIE Structures is allowed to retain such structures if they apply for secondary listing on the Exchange pursuant to Chapter 19C of the Listing Rules first, and become dual primary listed on the Exchange as the majority of trading in its listed shares migrates to the Exchange's markets on a permanent basis.
  • Similarly, a Non-Greater China Issuer with Non-compliant WVR and/ or VIE Structures can apply for secondary listing pursuant to Chapter 19C of the Listing Rules, and can retain such non-compliant structures regardless of whether the majority of trading in its listed shares takes place in the Exchange’s markets.
  • There is no guidance on whether a Grandfathered Greater China Issuer or Non-Greater China Issuer can similarly retain its Non-compliant WVR and/ or VIE Structures if it is delisted from the overseas exchange on which it is primary listed.
  • The Exchange proposes that Grandfathered Greater China Issuers and Non-Greater China Issuers with Non-compliant WVR and/ or VIE Structures may apply for a dual primary listing directly and retain the noncompliant structures, as long as they meet the eligibility and suitability requirements of Chapter 19C for issuers with a WVR structure listed on a Qualifying Exchange. These issuers may retain such structures subsisting at the time of its primary listing in Hong Kong, even if they are subsequently delisted from the Qualifying Exchanges on which they are primary listed.

 

3. Co-existence of two secondary listing regimes

  • The co-existence of two secondary listing regimes has caused confusion:
    • the JPS, which is only available to Overseas Issuers that do not have a centre of gravity in Greater China. PRC and Hong Kong issuers cannot list via this route; and
    • Chapter 19C of the Listing Rules for high-growth companies from innovative sectors listed overseas (including PRC and Hong Kong issuers) which meets the higher quantitative eligibility requirements of Chapter 19C, no matter whether they have a centre of gravity in Greater China or not.
  • ·Common waivers from compliance with certain Listing Rules that Overseas Issuers may apply for (which will be granted on a case-by-case basis by the Exchange) are set out in the JPS only. Automatic waivers from full compliance with certain Listing Rules (i.e. automatically granted upon satisfaction of requirements without making any application) for issuers with, or seeking, a secondary listing through the JPS are set out in the JPS ("JPS Automatic Waivers"), whereas those for issuers listed on Qualifying Exchanges are codified in Chapter 19C of the Listing Rules ("LR Automatic Waivers" together with the JPS Automatic Waivers, "Automatic Waivers"). Neither the Listing Rules nor the JPS set out the principles on which the Exchange grants these waivers.
  • The eligibility requirements for the JPS Automatic Waivers are as follows:
    • primary listing on a Recognised Stock Exchange;
    • five years of listing and good compliance record; and
    • a minimum expected market capitalisaton of USD 400 million.
  • Codification and consolidation of requirements of the two routes to secondary listing.
  • Codification of all secondary listing-related JPS provisions (including common waivers and JPS Automatic Waivers) into Chapter 19C of the Listing Rules.
  • Codification of the following principles on which exemptions or waivers will be granted to issuers with, or seeking, a secondary listing:
    • reliance can be placed upon: (i) the nature and extent of the regulatory standards and controls to which the Overseas Issuer is subject overseas; and (ii) the enforcement of those standards by the relevant regulatory authorities;
    • regulatory co-operation arrangements are in place between the SFC and both the issuer’s jurisdiction of incorporation and its jurisdiction of primary listing (if different);
    • the majority of trading in the issuer’s listed shares does not take place on the Exchange’s markets on a permanent basis; and
    • strict compliance with the Listing Rules would be unduly burdensome.
  • Codification of JPS Automatic Waiver eligibility requirements with minor modifications:

(a) the compliance record requirement changed from “five years” to “five full financial years”; and

(b) the minimum expected market capitalisation requirement changed from USD 400 million to HKD 3 billion.

4. Secondary listing requirements for Overseas Issuers with a centre of gravity in Greater China

  • Higher quantitative eligibility thresholds are imposed on issuers with a centre of gravity in Greater China ("Greater China Issuers"), relative to those imposed on other issuers. Greater China Issuers must:
    • demonstrate that they are “Innovative Companies”; and
    • have a minimum market capitalisaton at listing of HKD 40 billion (or HKD 10 billion with revenue of HKD 1 billion in the most recent audited financial year).
  • If the majority of trading in a Greater China Issuer’s listed shares migrates to the Exchange’s markets on a permanent basis, the Exchange will regard the issuer as having a dual primary listing and consequently, the LR Automatic Waivers granted to such issuer will be revoked ("Trading Migration Requirement"). Only Greater China Issuers are subject to the Trading Migration Requirement.
  • For all Overseas Issuers without a WVR structure (including Greater China Issuers) seeking a secondary listing, they will:
    • no longer be required to demonstrate that they are “Innovative Companies”; and
    • have the option of meeting a minimum market capitalisaton at secondary listing of either of the following:

(a) HKD 3 billion if it has a track record of good regulatory compliance of at least five full financial years on a Qualifying Exchange; or

(b) HKD 10 billion if it has a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange.

  • All secondary listed issuers will be subject to the Trading Migration Requirement.

5. Delisting of a secondary listed issuer from the overseas exchange of primary listing

  • The Listing Rules are silent on whether the Automatic Waivers granted to a secondary listed issuer will be revoked upon the issuer's delisting from the overseas exchange on which it is primary listed.
  • The Listing Rules are silent on whether a Grandfathered Greater China Issuer or a Non-Greater China Issuer can retain its Non-compliant WVR and/ or VIE Structures upon delisting from the overseas exchange on which it was primary listed
  • A secondary listed issuer will be regarded as having a primary listing on the Exchange upon its delisting from the overseas exchange of primary listing. The issuer will be required to give a prior written notice to the Exchange of any anticipated delisting (whether voluntary or involuntary) from the overseas exchange giving details of any proposed waivers or continued relief/ grace period for full compliance with any Listing Rules requirements (including the bases for requesting such waivers/relief/ grace period).
  • The Exchange may, on a case-by-case basis, exercise its discretion to grant a time-relief waiver, suspend trading of the issuer’s shares or impose other measures as it considers necessary for the protection of investors and the maintenance of an orderly market.
  • Grandfathered Greater China Issuers and Non-Greater China Issuers will be permitted to retain their Non-compliant WVR and/ or VIE Structures subsisting at the time of its secondary listing in Hong Kong even if they are delisted from the Qualifying Exchange after their secondary listings in Hong Kong.