The proposed changes provide an easier path to a Hong Kong listing particularly for Chinese companies under pressure to delist from US exchanges.
HKEX (Hong Kong Exchanges and Clearing) has issued a new consultation paper soliciting market feedback on proposed amendments to the listing rules to streamline the regime for overseas issuers.
The set of proposals in the consultation paper “aim to strike a balance between market development and investor protection for the benefit of the market as a whole,” HKEX says, pointing to inconsistent shareholder protection standards based on where overseas issuers are incorporated.
The consultation paper also points to an inherent complexity in the current listing regime for overseas issuers, with requirements “scattered” across various documents, making the regime difficult to navigate and comply with.
The eligibility and suitability requirements for overseas issuers seeking a secondary listing in Hong Kong are currently different for those that have a centre of gravity in Greater China, which face “more restrictive requirements” compared to issuers from other jurisdictions, HKEX says.
The consultation paper proposes to streamline the existing listing regime for overseas issuers, including those with a centre of gravity in Greater China, and also make “consequential amendments” to the requirements for all issuers.
“These proposals would enable a greater number of issuers with a centre of gravity in Greater China to secondary list to provide Hong Kong investors with the convenience of trading the shares of issuers that have cultural and economic ties to Greater China within local market hours and under the protections offered by the Hong Kong regulatory regime,” the consultation paper says.
HKEX proposes to replace differing shareholder protection standards contained in the current listing regime with one common set of core standards which will be applicable to all issuers regardless of their places of incorporation, repealing the equivalence requirement.
Under the proposed regime, Greater China and non-Greater China issuers with WVR (weighted voting rights) and VIE (variable interest entity) structures will be treated equally, allowing them both to apply directly for a dual primary listing a retain their structures, as long as they meet eligibility and suitability requirements.
The existing two routes available to overseas issuers for a secondary listing will also be consolidated by codifying the JPS requirements for issuers without WVR structures alongside the requirements of Chapter 19C of the listing rules.
Greater China issuers without WVR structures seeking a secondary listing in Hong Kong will no longer be required to demonstrate they are “innovative companies”, and will have the option of meeting a minimum market cap requirement of either HKD 3 billion or HKD 10 billion, depending on how long such companies have been listed on a foreign exchange. The current minimum market cap is HKD 40 billion.
Companies with VIE structures must still be defined as “innovative” to qualify for a listing,
The proposed changes provide an easier path to a Hong Kong listing particularly for Chinese companies under pressure to delist from US exchanges, without having to change their shareholding structures.