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Hong Kong Exchange Proposes New Listing Regime for Emerging Companies

Traders Magazine Online News, March 7, 2018

John D'Antona Jr.

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), recently published a consultation paper seeking public feedback on the proposed new rules to expand Hong Kong’s listing regime to facilitate listings of companies from emerging and innovative sectors.

The proposals in the consultation paper closely follow the Way Forward as set out by the Exchange on 15 December 2017 in the New Board Concept Paper Conclusions.

The paper includes draft Main Board Listing Rules (Listing Rule or Rules) to: (a) permit listings of biotech issuers that do not meet any of the financial eligibility tests of the Main Board; (b) permit listings of companies with weighted voting right (WVR) structures; and (c) establish a new concessionary secondary listing route for Greater China and international companies that wish to secondary list in Hong Kong.

The Exchange has proposed separate new chapters in the Listing Rules for biotech, WVR and the new concessionary secondary listing route.

In the past few months we have collectively decided to take a big step forward as a financial centre and welcome emerging and innovative companies.  Now, we are proposing a listing regime that will boost Hong Kong’s attractiveness for a new generation of companies as well as investors, bringing more dynamism to our stock market,” said HKEX Chief Executive Charles Li.

Significant momentum has been built for making Hong Kong’s capital markets more relevant and even more competitive.  We thank all market participants and invite them to help us put the finishing touches on the proposed rule amendments through this latest consultation,” Mr Li added.

In its proposals, the Exchange offers specific guidance on the listing eligibility for pre-profit/pre-revenue biotech issuers that produce pharmaceuticals (small molecule drugs), biologics, and medical devices (including diagnostics).  Manufacturers of other biotech products will be considered on a case by case basis.

Since issuers listed under the proposed biotech chapter would not meet any of the financial eligibility tests of the Main Board, these issuers potentially carry additional risks to investors.  Accordingly, the proposals include detailed eligibility and suitability criteria for determining appropriate applicants, a higher market capitalisation requirement, enhanced disclosure requirements as well as restrictions on fundamental changes of business.

On innovative issuers with WVR structures, the proposals closely follow the position set out in the Way Forward section of the New Board Concept Paper Conclusions.  An applicant will be required to demonstrate that it is eligible and suitable for listing with a WVR structure by reference to a number of characteristics, including the nature of the company and the contribution of the proposed WVR beneficiaries.  Recognising the potential risks associated with WVR structures, the Exchange has proposed detailed safeguards, including limits on WVR power and measures to protect non-WVR holders’ right to vote, enhanced corporate governance requirements as well as enhanced disclosure requirements.

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