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Capital Markets Quarterly - December 2024
2025-01-09

Howse Williams’ Capital Markets Quarterly aims to provide you an overview of the various regulatory and market updates in the fourth quarter of 2024, with summaries of some of the key amendments in the rules and guidelines, as well as important decisions made by the regulatory authorities in Hong Kong. We will also highlight some of the major market transactions over the last 3 months.

 

A) Regulatory Update

 

The Stock Exchange of Hong Kong Limited (the "Exchange")

 

Amendments to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules")

 

On 19 December 2024, the Exchange published conclusions to the consultation paper on “Review of Corporate Governance Code (“CG Code”) and Relating Listing Rules” published in June 2024. Having received support from a majority of respondents, all the proposals set out in the consultation paper will be adopted with certain modifications and clarifications, with effect from 1 July 2025.

 

We have published an article summarising the key changes, which is available here.

 

The new requirements will come into effect on 1 July 2025 and apply to corporate governance reports and annual reports for financial years commencing on or after 1 July 2025 (with the transitional arrangements in place).

 

A copy of the Consultation Conclusions paper is available here.

 

Consultation Paper on Proposals to Optimise IPO Price Discovery and Open Market Requirements

 

The Exchange also published a consultation paper on proposals to optimise IPO price discovery and open market requirements on 19 December 2024. The Exchange seeks to:

 

  1. Optimise the price discovery process for IPOs to increase the participation of “price setting” investors, thereby reducing the likelihood of the final offer price being set at a large disparity to the actual trading price when dealings in those shares commence.
  2. Review open market requirements, ensuring issuers will have sufficient shares in public hands that are available for trading at listing, whilst relaxing certain percentage thresholds which would imply a bar that may be too high in absolute dollar value.

 

The key proposals in the consultation paper are set out as follows:

 

  1. Open Market Requirements

 

  1. Calculation of public float: To clarify the basis for calculating public float.
  2. Initial public float: A tiered structure is proposed for the minimum public float requirements at listing.
  3. Ongoing public float: (i) Seeking feedback on the appropriate ongoing public float requirements and seeking views on whether listed issuers should be allowed additional flexibility to maintain a lower public float level after listing; (ii) To enhance annual public float disclosure requirements for increased transparency; (iii) Seeking feedback on the concept of an over-the-counter (OTC) market in Hong Kong.
  4. Free float[1]: To require that a certain portion of shares in public hands should be freely traded immediately upon listing to help provide liquidity.
  5. A+H issuers[2]: To reduce the minimum threshold of the amount of H shares that A+H issuers must list in Hong Kong to either represent at least 10% of the total number of issued shares in the same class (as compared to the current requirement of 15%), or have an expected market value of at least HK$3 billion at listing, which must also be held by the public.

 

  1. IPO Pricing and Offering Mechanism

 

  1. Regulatory lock-up on cornerstone investment: Seeking feedback on retaining the current requirement where IPO securities placed to cornerstone investors will be locked-up for six months after listing, or allowing a “staggered release” approach where 50% of the IPO securities placed to cornerstone investors will be released three months after listing and the remaining IPO securities will be released six months after listing.
  2. Placing tranche: It is proposed to require that every IPO to be priced by reference to a robust bookbuilding mechanism by requiring that an issuer allocate at least half of its offer shares to the bookbuilding placing tranche.
  3. Public subscription tranche: It is proposed to provide issuers with the flexibility to either initially allocate 5% of its offer shares to the public subscription tranche, subject to a clawback mechanism of up to 20% (as compared to the current requirement of a clawback mechanism of up to 50%), or initially allocate a minimum of 10% of its offer shares to the public subscription tranche, with no clawback mechanism.

 

  1. Pricing Flexibility Mechanism

 

  1. Pricing flexibility mechanism: It is proposed to allow issuers to set the final IPO price up to 10% above the indicative offer price range without delaying their IPO timetables (as compared to the current mechanism which only allows a downward adjustment of 10% below the indicative price range).

 

A copy of the Consultation Paper is available here.

 

Update to Guidance Letter, FAQs and Guide for New Listing Applicants

 

The Exchange published a new Guidance Letter HKEX-GL120-24 in November 2024 to provide guidance on investigations conducted by long suspended issuers. Trading in an issuer’s shares will be suspended if it fails to publish financial results or inside information due to unaddressed allegations of material accounting or corporate irregularities. To resume trading, the issuer must typically conduct an independent investigation, announce the findings, and take remedial actions. Guidance is provided for directors on how to facilitate compliance with resumption conditions. The Listing Committee will consider, among others, matters set out in this guidance letter and the Guidance Letter on long suspension and delisting (GL95-18) when assessing an issuer's compliance with the applicable resumption conditions and the merits of an application for extending the remedial period.

 

The Guide on Preparation of Annual Report is published by the Exchange in December 2024 which provides all the disclosure requirements for annual report under the Listing Rules and related guidance materials, contains prevailing recommended disclosure in specific areas and summarises the Exchange's guidance for financial disclosure under prevailing requirements.

 

In light of the latest climate-related disclosure requirements that came into effect on 1 January 2025, the Exchange has updated FAQ17.2 – No. 1-20 to assist listing applicants and listed issuers to understand and comply with the relevant Listing Rules.

 

The Exchange’s Disciplinary Actions

 

In the fourth quarter of 2024, the Exchange published sanctions in 8 cases which involve (i) transactions involving connected parties or failure to disclose and comply with procedural requirements, (ii) directors’ failure to safeguard listed issuer’s interests, discharge directors' duties and obligations under the Listing Rules and cooperate in investigations, and (iii) deficiencies in the listed issuer’s internal controls and risk management systems. Listed issuers should exercise caution and put in place proper check and balance, and transaction monitoring mechanisms.

 

News release date

Issuer/ directors involved – summary of conduct

 

12 December 2024

 

Former Director of Cathay Group Holdings Inc. (formerly known as Cathay Media and Education Group Inc.) (Stock Code: 1981)

  • Sanctions were imposed as despite repeated reminders, the former director had failed to discharge his director’s obligation under the Listing Rules to cooperate in an investigation conducted by the Listing Division.
  • In addition to a public censure, a Director Unsuitability Statement was imposed against the former director.

 

 

10 December 2024

 

Kaisun Holdings Limited (Stock Code: 8203) and Seven Directors

  • Between 2015 and 2019, the listed issuer provided financial assistance of nearly $40 million to Up Energy Development Group Limited (delisted, previous stock code: 307) ("Up Energy").  The financial assistance took the form of loans to Up Energy and payments made on Up Energy’s behalf.  At the time, Up Energy was in clear financial difficulty.
  • In 2017, Up Energy had failed to pay the listed issuer the entire balance of a $15 million loan, and had entered provisional liquidation. The listed issuer nevertheless agreed to provide Up Energy with substantial further funding.
  • The loans/payments constituted both financial assistance and a major transaction. The listed issuer was therefore required to make announcements and obtain shareholder approval, but the listed issuer failed to do so.
  • In 2019 and 2020, the listed issuer also failed to announce certain securities transactions which constituted discloseable transactions.
  • Two executive directors had close involvement in the Up Energy loans/payments.  The other directors were also aware of these transactions.  All of them failed to procure the listed issuer to comply with the requirements under the GEM Listing Rules.  An executive director and a former director also failed to discharge their duties as compliance officers.
  • Providing support to Up Energy when it was in a difficult financial situation was risky. However, the directors did not demonstrate that they had assessed, addressed or mitigated the risks. The directors submitted that they viewed the risks as low but there was no contemporaneous evidence or credible basis to support their asserted belief.
  • The listed issuer did not have any internal controls that were relevant and applicable to the Up Energy loans/payments and the securities transactions. All the directors failed to ensure that the listed issuer had adequate and effective risk management and internal control systems.  This was particularly serious as the listed issuer had been warned by the Exchange in 2017 and had announced at the time that it had taken remedial action. However, the Exchange’s investigation found no evidence that any such remedial action had been taken.
  • Censures were made against the listed issuer, two current executive directors, a current independent non-executive director and three former directors.
  • In addition to public censures, Prejudice to Investors' Interests Statements were imposed against two directors.
  • One of the former directors was criticised.
  • The Exchange further directed the listed issuer to conduct an internal control review, to appoint a compliance adviser and to announce the relevant loans, payments and securities transactions, and the directors (except for the two current executive directors) to attend 21 hours of training on regulatory and legal topics and GEM Listing Rules compliance.

 

26 November 2024

 

Sunshine 100 China Holdings Ltd (Stock Code: 2608) and Eight Directors

  • Between 2020 and 2022, the listed issuer granted loans in the total sum of RMB1.11 billion. The borrowers were in financial difficulty, and were themselves creditors of debts of other ultimate borrowers. These debts were secured by a building in Beijing. The listed issuer envisioned that any default would lead to a fire sale opportunity in which the listed issuer could purchase the Beijing building at a substantial discount as a distressed asset in judicial auction.
  • Despite the significant risks arising from the loans, the directors did not procure sufficient due diligence prior to granting the loans, and they did not properly devise a strategy for the listed issuer to recover the loans if the fire sale opportunity failed.
  • The listed issuer had various internal control deficiencies at the time, which contributed to the listed issuer’s failure to (1) timely publish its annual and interim results and reports; and (2) comply with requirements applicable to notifiable and connected transactions, some of which related to the loans.
  • The listed issuer, five current directors and one former director were criticised.
  • Censures were made against two executive directors who were responsible for procuring due diligence and implementation of these transactions.
  • The Exchange further directed the eight directors to attend 24 hours of training on regulatory and legal topics and Listing Rules compliance, including at least three hours on each of (i) directors’ duties; (ii) the Corporate Governance Code and (iii) the Listing Rules requirements for Chapters 13, 14 and 14A.

 

21 November 2024

Current Director of Tenfu (Cayman) Holdings Company Limited (Stock Code: 6868)

  • In December 2023, a non-executive director was authorised to purchase the listed issuer’s shares on behalf of the listed issuer pursuant to its share repurchase scheme. At the same time, the director also agreed with two substantial shareholders of the listed issuer that he would purchase the listed issuer’s shares on their behalf. The director made a number of purchases on behalf of both the listed issuer and the substantial shareholders during December 2023.
  • The director's dual roles gave rise to a conflict of duty, and he did not inform the listed issuer that he was also trading on behalf of the substantial shareholders. Regardless of whether he received any benefit from the substantial shareholders, the director should have taken steps to avoid or properly manage the conflict.
  • The non-executive director was criticised.
  • The Exchange further directed the director to attend 15 hours of training on regulatory and legal topics and Listing Rules compliance, including at least three hours on each of (a) directors’ duties and (b) the Corporate Governance Code, within 90 days.

 

14 November 2024

Former Director of Christine International Holdings Limited (Stock Code: 1210)

  • Following disciplinary action in 2022, a former non-executive director was criticised by the Exchange and was directed to attend 15 hours of training on Listing Rules compliance. The former director did not comply with the training direction.
  • The former director’s failure to comply with the training direction constituted a serious breach of the Listing Rules.
  • Censure and a Director Unsuitability Statement were imposed against the former director.
  • The Exchange further directed that the listing of the listed issuer's shares be cancelled under Rule 2A.10A(2)(b) of the Listing Rules if the former director continues to occupy a position as director or within senior management of the listed issuer and/or any of its subsidiaries upon the expiry of 14 days from the date of the Statement of Disciplinary Action.

 

22 October 2024

Two Former Directors of Suchuang Gas Corporation Limited (Delisted, Previous Stock Code: 1430)

  • The Listing Division conducted an investigation into the discharge of directors’ duties and obligations under the Listing Rules by two former directors.  The two former directors did not respond to the Division’s investigation and reminder letters in time or at all.  They failed to cooperate in the investigation.
  • A Director Unsuitability Statement and censure were imposed against each of the two former directors.

 

17 October 2024

Four Directors of China General Education Group Limited (Stock Code: 2175)

  • Two former directors, who were also the controlling shareholders of the listed issuer, entered into a number of problematic transactions on behalf of the listed issuer prior to and shortly after the listed issuer’s listing.
  • One of the former directors signed a pre-IPO investment agreement with a third party in relation to the subscription of the listed issuer’s IPO shares by the third party, in an effort to shore up demand for the listed issuer’s shares at the time of listing.
  • Despite the agreement being subsequently rescinded upon advice, the two former directors nevertheless procured the listed issuer to grant a loan in the sum of $25 million, and to make a $60 million investment in a fund. These transactions closely mirrored the obligations of the listed issuer under the rescinded investment agreement.
  • Further, the two former directors both procured the listed issuer to grant interest-free loans in the sum of approximately $40 million to a friend of one of them.
  • The commercial rationale for the loans and the investment in the fund, and the due diligence conducted on the counterparties of the transactions, were questionable. In the case of the investment in the fund, the directors did not consider any other investment opportunities or products. Two current directors approved the $25 million loan and the $60 million investment without questioning the basis for the same.
  • The two former directors have provided a number of undertakings, including an undertaking that they will not take up any directorship or senior management positions in any listed issuer in Hong Kong or its subsidiaries in the future. They have both resigned from the board of directors of the listed issuer with effect from 27 May 2024.
  • Censures were made against the four directors.
  • The Exchange further directed the two current directors to attend 15 hours of training on regulatory and legal topics and Listing Rules compliance, including at least three hours on each of (a) directors’ duties, and (b) the Corporate Governance Code.

 

3 October 2024

 

Three Former Directors of YNBY International Limited (Formerly Known as Ban Loong Holdings Limited) (Stock Code: 30)

  • The Listing Division conducted an investigation into the discharge of directors’ duties and obligations under the Listing Rules of three former directors. These directors did not respond to the Division’s investigation and reminder letters. They failed to cooperate in the investigation.
  • Censure and a Director Unsuitability Statement were imposed against each of the three former directors.

 

 

Securities and Futures Commission (the “SFC”)

 

Takeovers Bulletin No. 71

 

New email address for submissions to the Takeovers Team

 

As part of the SFC's ongoing paperless initiative, the Executive of the SFC has, since September 2023, required that all submissions be made by email unless otherwise directed. To further enhance operational efficiency, all submissions to the Executive of the SFC under the Codes on Takeovers and Mergers and Share Buy-backs (the “Takeovers Code”) should be sent to [email protected] (a designated email address for the Takeovers Team) starting from 1 February 2025. It is noted that the current email address, [email protected], will remain in use for receiving Takeovers Codes-related submissions until 31 January 2025.

 

Cold shoulder order against Zuo Ping for breaching the mandatory general offer obligation

 

On 15 November 2024, the SFC imposed a public censure and a six-year cold shoulder order against Ms. Zuo Ping for increasing her shareholding interest in CBK Holdings Limited (“CBK”) from 0% to over 30% in November 2023 without making a general offer as stipulated under Rule 26.1 of the Takeovers Code. As a result, Ms. Zuo is prohibited from accessing the Hong Kong securities market, whether directly or indirectly, for six years, until 14 November 2030.

 

The mandatory general offer obligation is one of the most fundamental provisions of the Takeovers Code. The SFC emphasised that parties wishing to take advantage of the securities markets in Hong Kong should conduct themselves in accordance with the Takeovers Code and seek professional advice as needed.

 

Rule 22 submissions: Aggregation of same-day, same-price trades and presentation of non-HKD currency-denominated trades

 

Rule 22 of the Takeovers Code provides that parties to an offer and their respective associates should disclose their dealings in relevant securities of the offeree company and those of the offeror during the offer period. The SFC acknowledged that it is possible that multiple trades are executed by a party on a single day. To the extent that such trades are executed at the same price, they should be aggregated for the purpose of Rule 22 filings. For example, if a party made five trades of 1,000 shares each at HK$1.25 on a certain date, a single entry of 5,000 shares at HK$1.25 should be included in the Rule 22 disclosure form. In contrast, if a party made five trades of 1,000 shares each at different prices, five separate entries should be made.

 

As for trades that are denominated in a non-Hong Kong dollar currency (for example, where the trade relates to a dealing on an overseas exchange or the RMB counter of the Exchange), to avoid any confusion arising from the exchange rate used by a party, the SFC concluded that the dealing disclosure should be presented in the currency of the transaction.

 

A copy of the Takeovers Bulletin is available here.

 

B) Market Update

 

There were 30 new Main Board IPO applications accepted by the Exchange and 26 IPOs launched in the fourth quarter of 2024 that consists of a diverse range of businesses. Examples of some of the recent Main Board listings are:

 

Issuer

Description

Innoscience (Suzhou) Technology Holding Co., Ltd. - H Shares (Stock Code: 2577)

A company that drives innovation in the global power semiconductor industry, dedicated to advancing the gallium nitride power semiconductor industry and fostering its ecosystem. Its retail offering was over-subscribed by 1.9 times with estimated net proceeds from the IPO of approximately HK$1,302.46 million. To date, its market capitalisation is approximately HK$15.30 billion.

 

Healthyway Inc. (Stock Code: 2587)

 

A company that operates a digital health and medical service platform in China. Its retail offering was over-subscribed by 33.4 times with estimated net proceeds from the IPO of approximately HK$109.4 million. To date, its market capitalisation is approximately HK$11.48 billion.

 

Mao Geping Cosmetics Co., Ltd. - H Shares (Stock Code: 1318)

 

A leading Chinese premium beauty group. Its retail offering was over-subscribed by 918.2 times with estimated net proceeds from the IPO of approximately HK$2,187.26 million. To date, its market capitalisation is approximately HK$14.57 billion.

 

S.F. Holding Co., Ltd. - H Shares (Stock Code: 6936)

 

A leading global integrated logistics service provider, the largest player in China and Asia, and the fourth largest player globally, in terms of revenue in 2023, according to Frost & Sullivan. Its retail offering was over-subscribed by 78.1 times with estimated net proceeds from the IPO of approximately HK$5,661.3 million. To date, its market capitalisation is approximately HK$5.74 billion.

 

Horizon Robotics - W (Stock Code: 9660)

A leading provider of advanced driver assistance systems and autonomous driving solutions for passenger vehicles, empowered by its proprietary software and hardware technologies. Its retail offering was over-subscribed by 32.8 times with estimated net proceeds from the IPO of approximately HK$5,142 million. To date, its market capitalisation is approximately HK$47.52 billion.

 

China Resources Beverage (Holdings) Co. Ltd. (Stock Code: 2460)

A renowned company in China’s packaged drinking water industry and China’s ready-to-drink soft beverage industry. Its retail offering was over-subscribed by 233.5 times with estimated net proceeds from the IPO of approximately HK$4,902.55 million. To date, its market capitalisation is approximately HK$28.15 billion.

 

 

[1] Securities of an issuer that are not subject to any disposal restrictions (“lock-up”) upon listing.

[2] “A+H issuers” refers to issuers incorporated in Mainland China with domestic shares listed on a stock exchange in Mainland China (i.e. A shares) and shares listed on the Exchange (i.e. H shares).

 

 

 

About Us

 

Howse Williams is a leading, full service, Hong Kong law firm. We combine the in-depth experience of our lawyers with a forward thinking approach.

 

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; trusts and wealth preservation; wills, probate and estate administration; property and building management; banking; fraud; distressed debt; investment funds; virtual assets; financial services/corporate regulatory and compliance.

 

As an independent law firm, we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

 

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice. Please contact [email protected] if you have any questions about the article.

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