To continue to develop Hong Kong as a listing and capital raising hub for major global and regional companies on both a primary or secondary basis, thereby attracting global investments seeking exposure to Asia Pacific companies and Mainland investors seeking international exposure and with an anticipation that the demand for secondary listing of US-listed Greater China Issuers on The Stock Exchange of Hong Kong Limited (the “HKEx”) will continue to grow, the HKEx published the consultation to its proposal to enhance and streamline the listing regime for overseas issuers on 31 March 2021.
On 19 November 2021, the HKEx published the conclusions to its consultation, “Consultation Conclusions on Listing Regime for Overseas Issuers” (the “Consultation Conclusions”) setting out the revised listing regime for overseas issuers (the “Revised Listing Regime”).
THE REVISED LISTING REGIME IN A NUTSHELL:
- One common set of core shareholder protection standards will apply to all issuers, providing the same level of protection to all investors;
- Greater China Issuers without a weighted voting rights (“WVR”) structure can secondary list: (a) without demonstrating they are an “innovative company” and (b) with a lower minimum market capitalisation at listing than currently required; and
- Grandfathered Greater China Issuers, i.e. Greater China Issuers (a) primary listed on a Qualifying Exchange on or before 15 December 2017; or (b) controlled by corporate WVR beneficiaries as at 30 October 2020 and primary listed on a Qualifying Exchange after 15 December 2017, but on or before 30 October 2020, and Non-Greater China Issuers eligible for secondary listing with their existing WVR and/or variable interest entity structures may opt for a dual primary listing.
WHAT IS THE REVISED LISTING REGIME?
- Shareholder protection standards
The requirement that shareholders of non-Hong Kong issuers must be afforded shareholder protection at least “equivalent to” that provided in Hong Kong, and the distinction between Recognised Jurisdictions and Acceptable Jurisdictions removed.
A baseline level of shareholder protection requirements (“Core Standards”) adopted for all issuers concerning:
- the notice and conduct of general meetings;
- members’ right (including HKSCC) to remove directors, requisition a meeting, vote, speak and appoint proxies or corporate representatives;
- the reservation of auditor appointment, etc. to a committee independent of the board of directors of a company or a majority of the shareholders and the reservation of certain other material matters to supermajority votes by shareholders;
- restrictions on the term of a director appointed to fill a casual vacancy;
- availability of the shareholders’ register for inspection; and
- restrictions on shareholder voting on certain matters required by the Listing Rules.
The Core Standards should be set out in the issuer’s constitutional documents unless the HKEx is satisfied that the domestic laws, rules and regulations to which the issuer is subject provide for the same protection.
Existing listed issuers will have to ascertain they are in full compliance with the Core Standards; otherwise, they would have until their second annual general meeting following 1 January 2022 to make any necessary amendments to their constitutional documents to conform to the Core Standards.
- Secondary Listing Requirements
Secondary listing requirements for Greater China Issuers without a WVR structure relaxed by:
- Removing the “Innovative Company” condition; and
- Lowering the market capitalisation requirement to HK$3 billion (i.e. the same as the minimum market capitalisation required of other secondary listing applicants without a WVR structure).
The HKEx may reject a secondary listing application if a material part of the applicant’s business was listed on the primary listing market by way of a reverse takeover (as determined by reference to the factors in Chapter 14 of the Listing Rules).
The two secondary listing routes codified with modifications.
- Secondary listed issuers’ conversion to primary listing status
The requirement under Rule 19C.13 of the Listing Rules that if the majority of trading in a Greater China Issuer’s listed shares migrates to the HKEx’s markets on a permanent basis, the HKEx will regard the issuer as having a dual primary listing and consequently the automatic waivers as set out in Rule 19.11 of the Listing Rules will no longer apply to such issuer (“Trading Migration Requirement”) applied to all secondary listed issuers.
A secondary listed issuer will be regarded as a primary listed issuer in the event of:
- Delisting from the exchange of primary listing (Route 1);
- The majority of trading in their listed shares migrates to the HKEx’s markets on a permanent basis (i.e. 55% or more of the total worldwide trading volume, by dollar value, of those shares (including the volume of trading in depositary receipts issued on those shares) over the overseas issuer’s most recent financial year, takes place on the HKEx’s markets) (Route 2); or
- Voluntary conversion (“Primary Conversion”) from seconding listing to dual primary listing on the HKEx (Route 3).
- Grandfathered Greater China Issuers and Non-Greater China Issuers with WVR and/or VIE Structures
WVR and/ or VIE structures of Grandfathered Greater China Issuers will continue to be grandfathered following conversion to primary listing status (as a result of migration, primary conversion or overseas de-listing from the overseas exchanges after their secondary listings in Hong Kong).
The existing WVR and/ or VIE structures (if any) of such issuers will also be grandfathered if they apply for dual primary listing directly.
Codified the special concession for Greater China Issuers controlled by corporate WVR beneficiaries by expanding the definition of “Grandfathered Greater China Issuers” in the Listing Rules.
WHAT TO LOOK OUT FOR:
- The Revised Listing Regime will become effective from 1 January 2022.
- Applicants to be listed on or after 1 January 2022 shall ensure that the Core Standards are set out in the constitutional documents.
- Existing listed issuers shall ensure they comply with the Core Standards before the second annual general meeting following 1 January 2022.
- Applicants and their legal advisers should bear in mind the Core Standards when preparing and drafting the constitutional documents and the relevant disclosures in the prospectus during the application process.
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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.