Webinar on HKEX: Secondary Listing of “innovative” companies and listing biotech companies (1st section)

Part II – HKEX: Secondary listing of “innovative” companies and listing biotech companies (1st section)

Secondary Listing Under Ch.19C

Ch.19C – allows innovative companies primary listed on a qualifying exchange (NYSE, Nasdaq or LSE main market’s premium segment) to secondary list on the HKEx

Grandfathered and Greater China Issuers

Grandfathered Greater China Issuers – Chinese companies primary listed on a Qualifying Exchange on or before 15 December 2017

Qualifications for Listing

must be an innovative company under HKEx-GL94-18
market cap. of at least HK$40 bn at time of secondary listing or market cap. of at least HK$10 bn at listing and revenue of at least HK$1 bn for the most recent audited financial year

track record of good regulatory compliance for at least 2 full financial years on a Qualifying Exchange

Equivalent Standards of Shareholder Protection

companies primary listed on a Qualifying Exchange after 15 Dec 2017 must comply with Appendix 3 of the Listing Rules and Appendix 13 if incorporated in China, Bermuda or Cayman
Grandfathered Greater China Issuers and Non-Greater China Issuers must demonstrate to the satisfaction of HKEx how applicable domestic laws, rules and regulations and constitutional documents satisfy key shareholder protection standards set out in Ch.19C 
must prominently disclose in listing documents any governance provisions in constitutional documents that are unusual compared to normal Hong Kong practices and are specific to the company

VIE Structures

Guidance Letter HKEx-GL94-18: Grandfathered Greater China Issuers and non-Greater China Issuers can secondary list on HKEx with existing VIE structure subject to PRC legal opinion
Non-Grandfathered Greater China Issuers applying to list under Ch.19C must comply with Listing Decision HKEx-LD43-3 (requiring contractual arrangements to be narrowly tailored to achieve company’s business purpose and minimise potential for conflict with PRC laws/regulations)

WVR companies

must satisfy Ch.19C eligibility and suitability criteria
non-Grandfathered Greater China issuers must ensure WVR structure complies with primary listing requirements under Ch.8A
foreign private issuers
must prominently disclose in its HK listing document the exemptions from US obligations as a result of its status as a Foreign Private Issuer
confidential filing
new applicant may make a confidential filing (PN22)

Waivers from Continuing Obligations (LR.19C.11)

automatic waivers under 2013 Joint Policy Statement apply to Qualifying Issuers
where a majority of trading in a Greater China Issuer’s shares migrates to HKEx’s markets on a permanent basis, the company will no longer enjoy the benefits of the Listing Rule waivers granted by LR 19C.11
where a majority of trading in a non-Greater China Issuer’s shares migrates to HKEx’s markets on permanent basis, the company will continue to enjoy the benefits of the Listing Rule waivers granted by LR 19C.11

Hang Seng Tech Index

27 Jul 2020
Hang Seng TECH Index launched – tracks the 30 largest HKEx-listed tech companies
7 SEP 2020
Alibaba and Xiomi officially included in the HSI

China – a Listing Venue for Tech Cos

172 companies listed on the STAR board as of 9 September 2020
US$19.4bn funds raised through listing on the STAR board as of 3 August 2020

SZSEs ChiNext

24 Aug 2020 – first batch of 21 companies debuted

Listing Pre-revenue Biotech Companies

28 biotech companies listed on the Main Board of HKEx from Apr 2018 – Apr 2020 raising HK$82.5 bn
16 of which were pre-revenue biotech companies listed under Ch.18A raising HK$39.7 bn

Chapter 18A Biotech Cos Listed in Hong Kong

Biotech Cos Listing in Hong Kong

Requirements for Listing

must meet the definition of a “biotech company” – primary engagement in R&D, application and commercialisation of biotech products
must demonstrate that it meets the suitability criteria set out in HKEx Guidance Letter GL92-18

Suitability Factors

01 developed at least one core product beyond the concept stage

Pharmaceuticals:

new pharmaceutical products – must have completed Phase 1 clinical trials
pharmaceutical products based on previously approved products – must have successfully completed at least one clinical trial conducted on human subjects and relevant competent authority has not objected to it commencing Phase 2 clinical trials
in-licensed or acquired core products – must have completed at least one clinical trial regulated by the relevant competent authority on human subjects since the in-licensing or acquisition

Medical Devices (including diagnostics):

must demonstrate product is categorised as a Class II medical device or above and that it has completed at least one clinical trial on human subjects
must show that the competent authority or authorised institution has endorsed or not objected to the listing applicant proceeding to further clinical trials or that the competent authority does not object to the listing applicant commencing sales of the device

Biologistic:

new biologic products – must have completed Phase 1 clinical trials and relevant competent authority has not objected to it commencing Phase 2 clinical trials
core products that are biosimilar – must have completed at least one clinical trial conducted on human subjects and relevant competent authority has no objection to it commencing Phase 2 clinical trials to demonstrate bio-equivalency
in-licensed or acquired core products – must have completed at least one clinical trial regulated by the relevant competent authority on human subjects since the in-licensing or acquisition

Other Biotech Products:

considered on a case-by-case basis

Suitability Factors (cont.)

must be primarily engaged in R&D for development of core products and have been engaged in  the R&D for at least 12 months prior to listing
primary reason for listing  must be to raise finance for R&D to bring core products to commercialisation
must have registered patent(s) / patent applications and/or IP in relation to its core products
a listing applicant engaged in R&D of pharmaceutical products or biological products must have a pipeline of those potential products

Suitability Factors (cont.)

must demonstrate it has previously received meaningful third party investment which is more than just a token investment from at least 1 sophisticated investor at least 6 months before the proposed listing which must continue at the date of listing

Other Requirements for Listing

minimum expected market cap. of HK$1.5 bn at listing (LR18A.03(2))
track record of operating in their current line of business for at least 2 YRs prior to listing under substantially the same management (LR18A.03(3))
HKEx will take into account any change in applicant’s ownership in the 12 months before the date of listing application (para. 4.1 GL92-18)
working capital available to cover at least 125% of the group’s costs for at least 12 months from date of publication of the listing document (after taking into account IPO proceeds) (LR 18A.03(4))

Subscription by Existing Shareholders

GL92-18 – existing shareholders are allowed to participate in a biotech company’s IPO provided that the company complies with the public float requirements of LR8.08(1) and LR18A.07 (share with market cap. of HK$375m publicly held at listing)
IPO shares subscribed by existing shareholders and cornerstones not publicly held under LR18A.07
update to GL92-18 in Apr 2020 – an existing shareholder holding < 10% of a biotech company’s shares can subscribe for IPO shares as placee or cornerstone
existing shareholder holding > 10% of biotech company’s shares can subscribe IPO shares only as cornerstone
where IPO shares will be allocated to a biotech company’s core connected persons, listing applicant should apply for a waiver from LR9.09

Clawback Mechanism

must present compelling reasons if they wish to change the minimum public subscription requirement under PN18 of the Listing Rules

Accountants’ Report

listing documents must include an accountants’ report covering two financial years