HONG KONG: HKEX Proposes New Listing Regime for Emerging and Innovative Companies

Monday February 26 2018

On 23^rd February 2018, the Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), 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 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.

For the proposed new secondary listings chapter, the Exchange aims to strike a balance between facilitating listings of innovative companies that are primarily subject to regulation overseas and providing appropriate investor protection.  As a result, it has proposed a new regime for three types of companies that are primary listed on a Qualifying Exchange (QE) in the US or the UK, namely: (a) Greater China issuers that were primary listed on a QE before the publication of the New Board Concept Paper Conclusions; (b) those that were primary listed on a QE afterwards; and (c) non-Greater China issuers.

After publishing its New Board Concept Paper Conclusions, the Exchange has received feedback suggesting that there may be legitimate commercial and competitive reasons to permit corporates to hold WVRs.  Accordingly, if the proposed Listing Rules to permit the listing of companies with a WVR structure are implemented, the Exchange plans to launch a consultation within three months of the implementation of these Listing Rules to further explore this option.

The Exchange invites broad market feedback on the substance of its proposals and the proposed Listing Rules to give effect to the proposals.  The public comment period ends on 23 March 2018.

If the proposals are implemented, a prospective listing applicant and its sponsor(s) may after the Listing Rules are published submit a formal pre-IPO enquiry regarding the interpretation of the final Listing Rules and their application to the prospective listing applicant’s circumstances.  Before then, the Exchange will respond to any such enquiries on an informal basis.  Companies may submit a formal application for listing under the new regime only after the Listing Rules to implement the regime come into effect.

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