The webinar covers an overview of the key changes to the HKEX Listing Rules, the HKEX listing regime for overseas companies, an outline of the HKEX’s proposed shareholder protection standards, the HKEX’s proposal to extend the secondary listing regime.
HKEX CONSULTATION PAPER – Listing regime for overseas issuers
OVERVIEW OF THE HKEX LISTING REGIME
THE HKEX LISTING RULES APPLY TO:
companies incorporated in Hong Kong
companies incorporated in the PRC
companies which are incorporated in neither Hong Kong nor the PRC (Overseas Companies)
OVERVIEW OF THE HKEX OVERSEAS LISTING REGIME
Grandfathered greater china issuer
Centre of gravity in China; and
primary listed on a Qualifying Exchange on or before:
15 December 2017 – if it has an individual weighted voting rights structure; or
30 October 2020 – if it has a corporate weighted voting rights structure.
Non-greater china issuer
A company which is primary listed on a Qualifying Exchange and does not have its centre of gravity in Greater China
OVERVIEW OF THE HKEX LISTING REGIME
SFC-HKEX JOINT POLICY STATEMENT
provides guidance to Overseas Companies wishing to list on the HKEX
RECOGNISED JURISDICTIONS
Hong Kong, the PRC, the Cayman Islands and Bermuda
ACCEPTABLE JURISDICTIONS
Austria, Australia, Brazil, British Virgin Islands, Canada (Alberta, British Columbia and Ontario), Cyprus, England & Wales, France, Germany, Guernsey, India, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Republic of Korea, Labuan, Luxembourg, Netherlands, Russia, Singapore and the United States of America (California, Delaware, and Nevada).
THE EQUIVALENCE REQUIREMENT
HKEX’S PROPOSAL TO SIMPLIFY THE OVERSEAS LISTING REGIME
Simplify the overseas listing regime
remove the distinction between Acceptable and Recognised Jurisdictions
the listing regime for companies incorporated in the PRC as joint stock companies (i.e. H share issuers) will continue to be set out separately in Chapter 19A of the HKEX Listing Rules
Shareholder protection
all companies listed on the HKEX (including secondary listed companies) should provide the same level of shareholder protection
14 core shareholder protection standards
HKEX OBJECTIVES
HKEX Consultation Paper seeks to address:
the complexity of the requirements for listing Overseas Companies; and
differences in shareholder protection standards provided by companies incorporated in Recognised Jurisdictions and those incorporated in Acceptable Jurisdictions.
COMPLEXITY AND INCONSISTENCY IN SHAREHOLDER PROTECTION STANDARDS
Complexity:
Chapter 19 (Overseas Issuers) and Chapter 19C (Secondary Listings of Qualifying Issuers) of the HKEX Listing Rules;
Appendices 3 and 13 to the HKEX Listing Rules;
The SFC-HKEX Joint Policy Statement;
The HKEX Country Guides; and
Various HKEX guidance materials.
Inconsistent shareholder protection standards:
Recognised Jurisdictions versus Acceptable Jurisdictions
HKEX Equivalence Requirement
CONCERN THAT CURRENT OVERSEAS LISTING REGIME MAY BE VIEWED AS OVERLY BURDENSOME AND UNAPPEALING TO PROSPECTIVE LISTING APPLICANTS
HKEX’S PROPOSED SHAREHOLDER PROTECTION STANDARDS
Proposal to adopt a single set of Core Standards
applicable to all HKEX listed companies
HKEX Equivalence requirement to be repealed
terms “Recognised Jurisdictions” and “Acceptable Jurisdictions” to be redundant
the HKEX will no longer issue country guides
proposed core standards to cover fundamental shareholders’ rights
CONFORM CONSTITUTIONAL DOCUMENTS TO CORE STANDARDS
Listed companies will need to conform their constitutional documents to the Core Standards or demonstrate how domestic laws + constitutional documents provide the Core Standards
LISTING DOCUMENT DISCLOSURE
disclose the major differences between standards under domestic laws & the Core Standards; and
highlight the risk & limitations of Hong Kong courts
ONGOING COMPLIANCE WITH CORE STANDARDS
Listed companies will be required to monitor compliance with the Core Standards
CORE STANDARDS: REMOVAL OF DIRECTORS
Members in a general meeting to have the power to remove any director by ordinary resolution
some Grandfathered Greater China companies may need to amend their constitutional documents to comply
Grandfathered Greater China Issuers and Non-Greater China Issuers with “non-compliant WVR structures” right to remove directors may undermine the effectiveness of the permitted WVR structure
HKEX will assess the applicability of the standard to relevant companies on a case-by-case basis
CASUAL VACANCY APPOINTMENTS
Appointments to fill a casual vacancy on or as an addition to the board to hold office until the next AGM and will be eligible for re-election
currently provided for in Appendix 3 to the HKEX Listing Rules
Similar provision in the Companies Ordinance (Cap. 622)
HKEX proposes to apply the core standard to all listed companies
some Grandfathered Greater China issuers may need to amend their constitutional documents to comply
if this Core Standard is adopted, the “comply or explain” requirement on casual vacancy appointments in the Corporate Governance Code will be repealed
TIMING OF ANNUAL GENERAL MEETINGS
Listed companies must hold a general meeting for each financial year as their annual general meeting (AGM)
Note: Generally, an AGM must be held within 6 months after the financial year end
Parts A & B of Appendix 13 & Joint Policy Statement require AGM each year within 15 months of previous AGM
Companies already listed subject to 15-month requirement to be regarded as compliant if comply with requirement that applied on listing
NOTICE OF GENERAL MEETINGS
An HKEX listed company must give its members reasonable written notice of its general meetings
Reasonable written notice — means > 21 days for an AGM and > 14 days for other general meetings.
PRC companies – HKEX will accept 20 days’ notice for AGMs and 15 days’ notice for special general meetings.
Companies currently listed on the HKEX — shorter notice period will be acceptable
Corporate Governance Code — “comply or explain” provision in the Corporate Governance Code will be repealed
THE RIGHT TO SPEAK AND VOTE AT GENERAL MEETINGS
Members must have the right to speak and vote at a general meeting except where a member is required, by the HKEX Listing Rules, to abstain from voting to approve the matter under consideration
SFC – HKEX Joint Policy Statement
members must have the right to speak and vote at a shareholder meeting
applicable to companies incorporated in Acceptable Jurisdictions and Grandfathered Greater China issuers and Non-Greater China issuers
Cayman Islands, Bermuda and Hong Kong
no existing requirement
RESTRICTION ON SHAREHOLDER VOTING
Where any shareholder is required under the HKEX Listing Rules to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted
Currently included in Appendix 3 to the HKEX Listing Rules and also a JPS Key Shareholder Protection Standard
two-tier voting arrangements
RIGHT TO CONVENE AN EXTRAORDINARY GENERAL MEETING
Members holding shares representing no more than 10% of the voting rights must be able to convene an extraordinary general meeting and add resolutions to a meeting agenda
under the SFC-HKEX Joint Policy Statement, the minimum level of members’ support required to convene an extraordinary general meeting must be no higher than 10%.
HK Companies Ordinance – shareholders representing 5% of voting rights can request directors to call a general meeting
VARIATION OF CLASS RIGHTS
A super-majority vote of the issuer’s members of the class to which the rights are attached shall be required to approve a change to those rights
misalignment with respect to the threshold and quorum required for a “super majority” vote
the HKEX proposes that a “super-majority” should mean at least three-fourths of the voting rights of the members holding shares in that class present and voting in person or by proxy
it is proposed that this new Core Standard be applied to all HKEX listed companies save for PRC incorporated companies.
AMENDMENTS TO CONSTITUTIONAL DOCUMENTS
A super-majority vote of the issuer’s members in a general meeting shall be required to approve changes to an issuer’s constitutional documents, however framed
A “super-majority” vote will be required to approve amendments to the constitutional documents of a HKEX listed company
The HKEX proposes that a “super-majority” should mean at least three-fourths of the voting rights of the members holding shares in that class present and voting in person or by proxy at the general meeting
It is proposed that this new Core Standard be applied to all HKEX listed companies save for PRC incorporated companies.
APPOINTMENT AND REMOVAL OF AUDITORS
The appointment, removal and remuneration of auditors must be approved by a majority of the issuer’s members or other body that is independent of the board of directors
Currently a JPS Key Shareholder Protection Standard while HK Companies Ordinance and the Mandatory Provisions have equivalent protections
It is proposed that this Core Standard be applied to all HKEX listed companies
PROXIES AND CORPORATE REPRESENTATIVES
Every member shall be entitled to appoint a proxy … and every shareholder being a corporation shall be entitled to appoint a representative to attend and vote at any general meeting
Currently only companies incorporated in the Cayman Islands or the PRC are subject to this requirement
Bermuda company law provides for an equivalent provision
The Hong Kong Companies Ordinance provides that a member of a company is entitled to appoint a proxy.
Companies incorporated in Acceptable Jurisdictions and Grandfathered Greater China issuers and Non-Greater China issuers may need to amend their constitutional documents to comply
HKSCC’S RIGHT TO APPOINT PROXIES OR CORPORATE REPRESENTATIVES
HKSCC must be entitled to appoint proxies or corporate representatives to attend the issuer’s general meetings and creditors meetings and those proxies/ corporate representatives must enjoy rights comparable to the rights of other shareholders, including the right to speak and vote
Currently applies to companies incorporated in Bermuda and the Cayman Islands under Appendix 13
It is a JPS Key Shareholder Protection Standard applicable to issuers incorporated in Acceptable Jurisdictions, Non-Greater China issuers and Grandfathered Greater China issuers
HKEX believes companies incorporated in the PRC and Hong Kong comply in practice
MEMBERS’ RIGHT TO INSPECT THE BRANCH REGISTER
The branch register of members in Hong Kong shall be open for inspection by members but the company may be permitted to close the register on terms comparable to section 632 of the Companies Ordinance (Cap. 622)
Cayman Islands incorporated companies are currently subject to this proposed Core Standard
The Bermuda company law and the Hong Kong Companies Ordinance (Cap. 622) have equivalent provisions
The Mandatory Provisions applicable to PRC-incorporated companies listed on the HKEX also provide for shareholders’ rights to inspect the branch register/li>
VOLUNTARY WINDING UP
A super-majority vote of the issuer’s members in a general meeting shall be required to approve a voluntary winding up of an issuer
A “super-majority” means at least three-fourths of the total voting rights of the members present and voting in person or by proxy at the general meeting
Current misalignment between the requirements under the JPS Key Shareholder Protection Standards, the Mandatory Provisions and the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)
PRC incorporated companies to remain subject to the current requirement for a two-thirds majority under the Mandatory Provisions
HKEX does not propose to impose a higher threshold on existing HKEX-listed companies currently subject to the Joint Policy Statement’s requirement for a two-thirds majority vote
repeal certain existing shareholder protections
Repeal some shareholder protections in Appendices 3 and 13 to the Listing Rules; and
the shareholder protections set out in the SFC-HKEX Joint Policy Statement,
as set out at Schedule C to the HKEX Consultation Paper
application of proposed core standards
Proposed Core Standards to apply to companies already listed on HKEX except where the HKEX has stated that they will not apply
Listed companies to have until 2nd AGM after implementation to amend constitutional documents
CODIFICATION OF JOINT POLICY STATEMENT PROVISIONS
Regulatory Cooperation Requirement — that statutory securities regulator in the jurisdiction of incorporation & place of central management and control must be full signatory to IOSCO MMOU — to be codified in MB Ch.8 & GEM Ch. 11
Alternative financial reporting standards
Alternative auditing standards
Company information sheets
Qualification requirements for accountants’ reports
PROPOSALS IN RELATION TO SECONDARY AND DUAL PRIMARY LISTING
Two key proposals
To expand the secondary listing regime for overseas-listed Greater China companies from traditional sectors (i.e. companies not meeting the definition of “innovative” companies as set out in HKEX Guidance Letter GL94-18) which do not have weighted voting rights structures; and
To allow companies to dual primary list on the HKEX while maintaining their existing weighted voting rights structures and variable interest entity (VIE) structures.
ISSUES IDENTIFIED IN RESPECT OF DUAL PRIMARY LISTINGS
Two issues identified
The current HKEX Listing Rules and guidance materials provide no clear guidance on the basis on which the HKEX will grant waivers to primary and dual primary listed companies; and
Currently, Grandfathered Greater China Issuers and Non-Greater China Issuers cannot apply directly to the HKEX for a dual primary listing and retain their WVR structures that do not comply with the Chapter 8A requirements
CODIFICATION OF WAIVERS
Primary and dual primary listed companies
Typically, all or a majority of their equity securities trade on the HKEX
Subject to full compliance with the HKEX Listing Rules, unless specifically waived
Secondary listing on the HKEX
HKEX will grant extensive waivers from the HKEX Listing Rules (through automatic waivers) because the company is subject to regulation and enforcement in the jurisdiction of its primary listing
COMMON WAIVERS AND THE PROPOSALS
Appendix to the SFC-HKEX Joint Policy Statement
14 common waivers that are currently available to Overseas Companies applying for a dual primary listing on the HKEX
Application for common waivers required
Waiver application must demonstrate need for common waiver and ability to meet any prescribed conditions
The Underlying Principle
Waiver decisions based on the underlying principle that the Overseas Company must demonstrate that strict compliance with both the relevant HKEX Listing Rule and the overseas exchange’s requirement would be unduly burdensome or unnecessary (the Underlying Principle)
PROPOSED CODIFICATION OF COMMON WAIVERS
HKEX proposes to codify:
the Underlying Principle (that an Overseas Company must demonstrate that strict compliance with both the relevant HKEX Listing Rule and the overseas exchange’s requirement would be unduly burdensome or unnecessary); and
certain common waivers currently set out in the appendix to the SFC-HKEX Joint Policy Statement where the underpinning principle and conditions are unlikely to change in the foreseeable future.
GRANDFATHERED GREATER CHINA ISSUERS AND NON-GREATER CHINA ISSUERS
HKEX proposes to:
allow Grandfathered Greater China Issuers and Non-Greater China Issuers to dual primary list with a Non-Compliant WVR and/or VIE structure, subject to meeting Ch.19C suitability requirements
allow secondary- and dual primary-listed Grandfathered Greater China Issuers and Non-Greater China Issuers to retain Non-Compliant WVR and/or VIE structures on de-listing from their Qualifying Exchange
Definitions
Non-compliant WVR structure = WVR structure not meeting requirements of Chapter 8A & HKEX GL93-18
Non-compliant VIE structure = VIE structure not meeting requirements of HKEX LD43-3
ISSUES IDENTIFIED IN RELATION TO SECONDARY LISTINGS
Key issues:
confusion created by the co-existence of two secondary listing regimes (under the SFC-HKEX Joint Policy Statement and Chapter 19C of the Listing Rules);
more restrictive secondary listing requirements for companies with a centre of gravity in Greater China
lack of clarity re. HKEX’s approach to granting waivers to secondary listing applicants; and
uncertainty as to whether automatic and other waivers granted to a secondary listed company continue when: (a) the majority of trading in its shares migrates to the HKEX; or (b) it de-lists from the overseas exchange of primary listing
PROPOSAL TO CONSOLIDATE REQUIREMENTS TO REDUCE COMPLEXITY
Two routes to secondary listing
SFC/HKEX Joint Policy Statement
for Overseas Companies with centre of gravity outside Greater China
able to meet additional eligibility requirements of Section 5 of JPS
Listing Rules Ch. 19C
primary listed on Qualifying Exchange
able to meet additional eligibility requirements of Ch. 19C
must be innovative company
companies with centre of gravity in Greater China only eligible for secondary listing under Ch. 19C
Ch. 19C will consolidate requirements for secondary listing
Ch. 19 will consolidate requirements for primary listings of Overseas Companies
Applicant to be Subject to the Regulatory Requirements of its Market of Primary Listing:
the HKEX has the right to refuse a secondary listing where inter alia the secondary listing applicant has received waivers or is exempt from rules, regulations or legislation that result in it being subject to regulatory requirements that are materially less stringent than those generally applicable to entities listed on its primary market
PROPOSED QUANTITATIVE ELIGIBILITY REQUIREMENTS FOR SECONDARY LISTING APPLICANTS
CRITERIA A
A track record of good regulatory compliance of at least 5 full financial years:
on a Qualifying Exchange for an Overseas Company without a WVR structure; or
on a Recognised Stock Exchange for an Overseas Company without a WVR structure and without a centre of gravity in Greater China; and
an expected market capitalisation at the time of secondary listing of at least HK$3 billion
CRITERIA B
A track record of good regulatory compliance of at least 2 full financial years on a Qualifying Exchange; and
an expected market capitalisation at the time of secondary listing of at least HK$10 billion
The aim is to consolidate the existing two routes to secondary listing by codifying the Joint Policy Statement’s requirements for companies without WVR structures (Criteria A) alongside the requirements of Chapter 19C (Criteria B).
SECONDARY LISTING WITHOUT LISTING COMPLIANCE RECORD
The HKEX Consultation Paper proposes an exemption from the listing compliance record requirement under Criteria A or B for secondary listing applicants
without a WVR structure
with a market cap at listing significantly larger than HK$10 billion
It is proposed to make secondary listings requirements for companies with a “centre of gravity” in Greater China less restrictive
LOWER MARKET CAP. THRESHOLDS FOR GREATER CHINA COMPANIES
Companies with a centre of gravity in Greater China without a WVR stucture to be able to secondary list
under Criteria A with:
a minimum market cap. at secondary listing of at least HK$3 bln; and
a track record of good regulatory compliance of 5 financial years on a Qualifying Exchange
under Criteria B with:
a minimum market cap. at secondary listing of at least HK$10 billion ; and
a track record of good regulatory compliance of 2 financial years on a Qualifying Exchange
DISAPPLICATION OF INNOVATIVE COMPANY REQUIREMENT
The proposed dis-application of the ‘Innovative Company’ requirement
HKEX proposes to remove the ‘innovative company’ requirement
Proposal to address regulatory arbitrage risk
To deter attempts at regulatory arbitrage the HKEX proposes to introduce a new listing rule giving it discretion to refuse a secondary listing application where it considers the listing is an attempt to avoid the primary listing rules
Proposed Extension of Trading Migration Requirement to all secondary listed companies
automatic waivers granted to Greater China Issuers secondary listed under Ch.19C are revoked if majority of trading in their listed shares migrates to HKEX on a permanent basis (“trading migration requirement”)
HKEX proposes to extend trading migration requirement to all secondary listed companies
PROPOSED CODIFICATION OF WAIVERS FOR SECONDARY LISTED COMPANIES
The HKEX proposes to codify certain principles according to which the HKEX will waive, modify or grant exemptions from the HKEX Listing Rules for companies applying for a secondary listing on the HKEX
Codification of automatic waivers and certain common waivers where the HKEX believes that the underpinning principle and conditions of these waivers are unlikely to change over time
PROPOSED REMOVAL OF PRE-EMPTIVE RIGHTS CONDITION
HKEX proposes to remove the condition for waiver of the shareholders’ consent requirement for a new issue, allotment or grant of securities under LR13.36 for secondary listed companies
REQUIREMENT FOR BOARD DIVERSITY POLICY
HKEX proposes that secondary listed companies are subject to the Listing Rules’ requirements on board diversity
PROPOSALS RELATING TO DE-LISTING FROM AN OVERSEAS EXCHANGE OF PRIMARY LISTING
Listing Rules are silent on what happens to the waivers granted to a secondary listed company which de-lists from the exchange of primary listing
HKEX proposes that where a company de-lists from its primary exchange, it will be regarded as having a primary listing on the HKEX and will need to comply with all Listing Rules applicable to a primary listed company
Advance written notice required
HKEX waiver applications which will be assessed on a case-by-case basis
DEADLINE FOR RESPONDING TO CONSULTATION PAPER — 31 May 2021
