Background
In the past, secondary listing of an overseas issuer that has its centre of gravity in the
Following an amendment of the Statement that its section 5 no longer applies to secondary listings under Chapter 19C,
Definition of Greater China Issuers
Chapter 19C of the Listing Rules defines a Greater China Issuer as Qualifying Issuer with its “centre of gravity” in
Grandfathered vs. Non-Grandfathered Greater China Issuers
The Exchange has different treatments for Grandfathered and Non-Grandfathered Greater China Issuers. The former are Greater China Issuers primary listed on a Qualifying Exchange on or before
Suitability for Secondary Listing on the Exchange
Generally speaking, a Qualifying Issuer seeking a secondary listing is eligible and suitable for listing under Rule 8.04 of the Listing Rules. In particular, for a Qualifying Issuer seeking a secondary listing under Chapter 19C, Rules 8A.04 to 8A.06 on basic conditions for listing and qualifications for listing with a WVR Structure do not apply. A large emerging and innovative company, being a Qualifying Issuer, is normally considered as a suitable candidate for the purpose of secondary listing under Chapter 19C.
According to Guidance Letter HKEX-GL94-18 (the “Guidance Letter”), the Exchange would normally assess the suitability of a candidate by considering whether it has the following characteristics:
- its success is attributable to the application of new technologies, innovations, and/or a new business model to its core business, which differentiates the applicant from existing players;
- research and development significantly contributes to its expected value and comprises a major activity and expense;
- its success is attributable to its unique features or intellectual property; and/or
- it has an outsized market capitalisation/intangible asset value relative to its tangible asset value.
The Exchange would expect an innovative company to possess more than one of the above characteristics to demonstrate its suitability for secondary listing under Chapter 19C. The Exchange emphasizes that the superficial application of new technology to a conventional business is insufficient to qualify an applicant for secondary listing unless it exhibits other distinctive features or characteristics. The Exchange will review the facts and circumstances of each case to determine if such applicant has demonstrated that it is an innovative company for the purpose of the Listing Rules.
Qualifications for secondary listing under Chapter 19C
Under Chapter 19C, a Qualifying Issuer must have a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange. In respect of market capitalization requirement, all Greater China Issuers must have (i) a market capitalisation of
Standards of Shareholder Protection
All Qualifying Issuers must meet the shareholder protection standards set out in Rule 19C.07. However, the extent of which the Listing Rules apply to Grandfathered and Non-Grandfathers Greater China Issuers differs. For instance, Appendices 3 (on articles of association) and 13 (on additional requirements for memorandum and bye-laws) do not apply to Grandfathered Greater China Issuers.
Where both a Grandfathered Greater China issuer and a Non-Grandfathered Greater China Issuer must comply with Rule 19C.07 as an ongoing condition of its listing under Rule 19C.09 for the former and as required by Appendices 3 and 13 of the Listing rule for the latter, the difference lies in the means they are allowed to use for such compliance. A Grandfathered Greater China issuer is not obliged to amend their constitutional documents to meet
Variable Interest Entity (” VIE “) Structures/Contractual Arrangements
It is often seen that offshore-listed Chinese companies use VIE structures to indirectly own and control businesses operating in an industry sector that is subject to foreign investment restrictions under PRC law. Grandfathered Greater China Issuers can secondary list on the Exchange with their existing VIE structures in place. Although they will not be required to demonstrate their ability to comply with the PRC Foreign Investment Law (the “FIL”), they must (i) provide the Exchange with a PRC legal opinion confirming that such VIE structures comply with PRC laws, rules and regulations; and (ii) comply with the disclosure requirements set out in Listing Decision HKEx-LD43-3 (the “Listing Decision”). Whereas Non-Grandfathered Greater China Issuers, in addition to the compliance with the requirements set out in the Listing Decision, they may also be required by the Exchange to demonstrate that they are able to comply with the requirements under the FIL. Since the FIL only became effective on
Issuers with WVR Structures
With regard to issuers with a WVR Structure, Grandfathered Greater China Issuers are able to secondary list on the Exchange with their existing WVR structure in place. They do not need to comply with, except for disclosure requirements, the ongoing WVR investor protection requirements set out under Rules 8A.07 to 8A.36, 8A.43 and 8A.44 which mainly govern the restrictions on WVR Structures (such as the restriction not to increase the proportion of WVR shares after listing; or the requirement for certain resolutions to be subject to voting on a one vote per share basis).
Non-Grandfathered Greater China Issuers, on the other hand, are required to ensure that its WVR structure complies with the primary listing requirements under Chapter 8A, including ongoing WVR safeguards and disclosure requirements. Where necessary, these issuers have to incorporate certain provisions into its constitutional documents in accordance with Rule 8A.44 in order to satisfy the key shareholder protection standards required thereunder.
Automatic waivers
Greater China Issuers will enjoy automatic waivers from full compliance with the Listing Rules under Rule 19C.11 which would otherwise be burdensome for them. These waivers, including those concerning connected transactions, notifiable transactions and the Corporate Governance Code under Appendix 14, are granted on the basis that the securities of these issuers are traded in
There will be a grace period of 12 months for a Greater China Issuer to comply with the applicable requirements. Such grace period will commence from the Exchange's written notice of its decision that majority of trading in the Greater China Issuer's listed shares have migrated permanently to
Unusual Provisions in Qualifying Issuers' Constitutional Documents
Under Rule 19C.10, a Qualifying Issuer must prominently disclose in its listing documents any provision in its constitutional documents relating to its governance that are unusual compared with normal practices in
Confidential Filing of Secondary Listing Applications
Paragraph 18 of Practice Note 22 to the Listing Rules requires new listing applicants to submit the Application Proof of their listing document to the Exchange for publication on the Exchange website. However, a new applicant which has been listed on a recognised overseas exchange for at least five years and has a significantly large market capitalisation at the time of filing its listing application is entitled to make a confidential filing of its Application Proof. Such applicant is not subject to the publication requirements unless requested to comply with them by the Exchange or the SFC. All other requirements under the Listing Rules apply unless a waiver is granted.
Tightening audit requirements in the US
Under the US laws, auditors of companies whose shares are registered with
Conclusion
With the recent growing tension between
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