A Listing Regime for Companies from Emerging and Innovative Sectors
Hong Kong is the world’s top market for initial public offerings. To raise Hong Kong’s competitiveness as a financial center, the Stock Exchange of Hong Kong Ltd. (the “Exchange” or “SEHK”) introduces three chapters to the Main Board Listing Rules, to allow the listing of companies that have weighted voting right (WVR) structures and Biotech Companies which do not meet the Financial Eligibility Tests of the Main Board, and create a new concessionary secondary listing route for Greater China and international companies seeking a secondary listing in Hong Kong. Relevant contents include:
Companies with WVR Structures
- The market capitalisation of a company at the time of listing must satisfy one of the following:
- at least HK$40 billion; or
- at least HK$10 billion and revenue of at least HK$1 billion for the most recent audited financial year.
- Non-WVR shareholders must be entitled to cast at least 10% of the eligible votes.
- The voting power of any beneficiaries of weighted voting rights must not exceed ten times the voting power of ordinary shares, on any resolution tabled at the issuer’s general meetings.
- At listing, any beneficiaries of weighted voting rights must be members of the applicant’s board of directors.
- The beneficiaries of weighted voting rights must beneficially own collectively at least 10% of the substantial equity. The Exchange may be prepared to accept a lower minimum shareholding percentage if the lower substantial equity still represents a very large amount in absolute dollar terms (for example if the applicant has an expected market capitalisation of over HK$80 billion).
- The company must include the warning “A company controlled through weighted voting rights” on the front page of all listing documents, periodic financial reports, circulars, notifications and announcements and describe the WVR structure, the issuer’s rationale for having it and the associated risks prominently in its listing documents and periodic financial reports.
- The listed equity securities must have a stock name that ends with the marker “W”.
Subsequent Operation Management
- The weighted voting rights attached to a beneficiary’s shares must cease upon transfer to another person of the beneficial ownership of, or economic interest in, those shares or the control over the voting rights attached to them (through voting proxies or otherwise).
- Any conversion of shares with weighted voting rights into ordinary shares must occur on a one-to-one ratio.
- Non-WVR shareholders have the right to convene an extraordinary general meeting and add resolutions to the meeting agenda. The minimum stake required to do so must not be higher than 10% of the voting rights on a one vote per share basis in the share capital of the listed issuer.
- A Biotech Company must:
- demonstrate to the Exchange’s satisfaction that it is both eligible and suitable for listing as a Biotech Company;
- have an initial market capitalisation at the time of listing of at least HK$1.5 billion;
- have been in operation in its current line of business for at least two financial years prior to listing under substantially the same management; and
- ensure that it has available sufficient working capital to cover at least 125% of the company’s costs for at least 12 months from the date of publication of its listing document (after taking into account the proceeds of the applicant’s initial listing).
- The company must disclose in its listing documents its strategic objectives, the details of each Core Product, details of its research and development experience, estimate of cash operating costs related to Core Products, specific risks, general risks and dependencies.
- The company must, in respect of each Core Product, prominently disclose to investors a warning that the relevant Core Product may not ultimately be successfully developed and marketed.
- The company must ensure that a portion of the total number of its issued shares with a market capitalisation of at least HK$375 million is held by the public. Any shares allocated to a Cornerstone Investor and any shares subscribed by existing shareholders of the company shall not be considered as held by the public.
- The company must have previously received meaningful third party investment from at least one Sophisticated Investor at least six months before the date of the proposed listing (which must remain at IPO).
- The company must provide ongoing disclosures regarding its R&D activities in its interim and annual reports.
- The listed equity securities must have a stock name that ends with the marker “B”.
Companies from Innovative Sectors Seeking A Secondary Listing in Hong Kong
- The company must demonstrate to the Exchange that it is both eligible and suitable for listing.
- The company must have a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange (NYSE, NASDAQ or the “premium listing” segment of the LSE’s Main Market).
- A Non-Greater China Issuer without a WVR structure must have an expected market capitalisation at the time of its secondary listing of at least HK$10 billion.
- A secondary listing applicant with a WVR structure and/or which is a Greater China Issuer must satisfy one of the following:
- a market capitalisation of at least HK$40 billion at the time of listing; or
- a market capitalisation of at least HK$10 billion at the time of listing and revenue of at least HK$1 billion for the most recent audited financial year.
- The company may make a listing application on a confidential basis.
- The company must prominently disclose in its listing documents any provisions in its constitutional documents concerning its governance that are unusual compared with normal practices in Hong Kong and are specific to the company.
Subsequent Operation Management
- The issuer must hold a general meeting each year as its annual general meeting.
- Members holding a minority stake in the issuer’s total number of issued shares are allowed to convene an extraordinary general meeting and add resolutions to a meeting agenda. The minimum stake required to do so must not be higher than 10% of the voting rights in the share capital of the issuer.
- 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.
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