ong Kong Exchanges and Clearing (HKEX) has ranked top five globally in fundraising over the past five years with over HK$1.45 trillion being raised by companies. As at 31 March 2022, there are more than 2,500 international, Hong Kong and Mainland companies listed on HKEX, with a market capitalization of around HK$53 trillion. In 2021, HKEX announced certain listing rule amendments to enhance the attractiveness of the stock market and to attract more high quality companies to list on HKEX.
In May 2021, HKEX published its consultation conclusions regarding the revised minimum profit requirement for listing on the Main Board. From 1 January 2022, the aggregate profit requirement for the first two financial years was increased from HK$30 million to HK$45 million, and the profit requirement for the third financial year was increased from HK$20 million to HK$35 million. HKEX is also eligible to grant relief for the HK$80 million profit requirement spread within the three financial years based on a case-by-case basis, provided that the listing applicant meets the new aggregate profit threshold of HK$80 million. As at 31 March 2022, there are around 150 companies in the pipeline seeking to list on HKEX, out of which, around 100 companies submitted their listing application after the effective date of revised listing rules.
The HKEX also revised its secondary and dual-primary listing requirements, which took effect on 1 January 2022. From then, the “innovative” business requirement (e.g. Internet or other high-tech businesses), which was previously an essential condition for a secondary listing, was removed for all overseas companies without a weighted voting rights structure.
With the revised requirements published by HKEX, more companies, especially those with a lower market capitalization, will see benefits. The removal of the “innovative” business requirement is regarded as a big enhancement as it will enable more small-size “non-innovative” business companies to seek their secondary listing on HKEX.
A new guidance letter on “Change of listing status from secondary listing to dual-primary or primary listing on the Main Board” also became effective on 1 January 2022. Under the new guidance, the listing status of the secondary listed issuers changes in the following ways: (i) Primary conversion: the issuer is eligible to choose the voluntary conversion and “upgrade” the listing status from secondary listing to dual-primary listing; (ii) Overseas delisting: a secondary listed issuer will automatically be regarded as a primary listed issuer on HKEX if the listed issuer was delisted from its existing oversea exchange on which it is primary listed; or (iii) Trading mitigation: a secondary listed issuer will be required to convert from a secondary listing to a primary listing on HKEX if a majority of the trading volume of the secondary listed issuer has been migrated to HKEX.
Recently, the United States Public Company Accounting Oversight Board said it was blocked from reviewing the audits of the Mainland companies listed on U.S. stock exchanges. The auditors of these companies stated that the current Chinese national security law prohibits them from releasing the audit papers to U.S. regulators. Under the U.S. Holding Foreign Companies Accountable Act, a company would be delisted from U.S. stock exchanges if they fail to comply with the audit inspection requirements for three consecutive years.
In view of the above revised HKEX listing rules and changes, it is expected that more U.S.-listed Chinese companies will choose to come back for a secondary or primary listing on HKEX, further boosting the city’s bourse as a fundraising venue in Asia.
About the webinar series
The “Entities Listing on HKEX Series” webinar series, which will run from May to June over 16 sessions, covers preliminary initial public offering (IPO) planning considerations, the IPO process, basic requirements for companies seeking to list on HKEX, asset valuation, company secretarial, general internal control, and the related laws in Mainland China and Hong Kong. It will also cover the reasons of returned and rejected listing applications by HKEX and discuss how companies can avoid having their listing application turned down, as well as the continuing obligations of a listed entity with the objective of enhancing participants’ understanding of the key aspects for listing, merger and acquisition of listed or listing entities on HKEX, etc. Furthermore, we will focus on the financial restructuring of listed companies in distress, the latest trends in the challenging economic situation amid COVID-19 and the most effective action to take when an entity encounters any alleged corporate fraud and financial accounting scandals.
Each session will cover the key points of the listing rules, guidance letters, listing decisions, other relevant rules and regulations, and examples of published prospectus and circulars. The speakers will also share their practical experience on specific topics and common application issues.
Vincent Li FCPA (practising), Partner, ShineWing China and Hong Kong, has over 35 years of experience in the fields of accounting, auditing, corporate finance, business strategies and development. He has extensive experience in providing audit and accounting services to international and multinational enterprises in Hong Kong and Mainland China. He also assisted various Hong Kong entities, Mainland state-owned enterprises and Mainland local entities in their listing on stock exchanges in Hong Kong, Singapore and Korea. He is also a member of the Association of Chartered Certified Accountants and the Institute of Chartered Accountants in England and Wales.