Listing Shares on the Hong Kong Stock Exchange SUMMARY OF CONTENTS 1. INTRODUCTION The purpose of this publication is to provide an overview of new listings of shares on the Stock Exchange of Hong Kong Limited (the “Stock Exchange”). An early assessment of the many requirements and other issues relating to a new listing is important, in particular to ensure that potential problems are addressed early. As it is not possible to cover in detail all the types of new listings in a short publication such as this, we have concentrated on the areas of most general interest – a new listing by means of a public offer of new shares (where the company issues new shares to raise capital for itself) or of existing shares (where existing shareholders sell part of their shareholdings to realize part of their investment) or a combination of the two. This publication does not deal with issues and requirements relating to the listing of investment vehicles, debt securities, warrants or other derivatives, or secondary listings on the Stock Exchange. However, Deacons has experience in all of these areas and will readily provide advice or information. Back to Top 2. REASONS FOR LISTING 2.1 Principal benefits The principal benefits of a listing are: raising additional capital: to fund expansion or reduce indebtedness – while the initial listing process is long and arduous, a listed company is generally able to raise additional capital more quickly and easily than a privately owned company relieving financial burden on shareholders: listed companies should be self financing, and shareholder finance, guarantees and security are usually discharged during the listing process to enable existing shareholders to realize part of their investment: while the existing shareholders will generally retain control of the business, they can realize part of their investment either during or following the listing process (a shareholding of less than 50% often being sufficient to maintain effective control) raising the profile and status of the company: a listing will generally raise the profile and status of a company, often improving its negotiating strength when dealing with third parties such as bankers or suppliers creating liquidity for shareholders: by providing a market in which existing shareholders and other investors can deal in the company’s shares.
2.2 Potential disadvantages The potential disadvantages of a listing result mainly from the additional regulatory requirements which arise, as well as the increased publicity which a listed status usually involves. These include: keeping the market informed: the market must be kept informed of all material developments
timely reporting: in particular the need for timely publication of detailed financial information
increased scrutiny: increased scrutiny of the management and its performance, particularly in respect of the company's overall performance and directors' remuneration
regulation of transactions: the company must make full disclosure of, and in some cases seek shareholders' approval(s) for, significant transactions and also transactions with directors, substantial shareholders and other "connected persons"
regular dividend: shareholders will expect a regular dividend on their investment, whereas previously all profits may have been reinvested in the company.
Back to Top 3. QUALIFICATIONS FOR LISTING The main qualifications for a new primary listing on the Stock Exchange are: suitability for listing: the company and its business must, in the opinion of the Stock Exchange, be suitable for listing
sufficient trading record: at least a 3 year trading record under substantially the same management, showing a profit in the most recent year of not less than HK$20 million, and in respect of the previous 2 years, an aggregate profit of not less than HK$30 million (such profits to exclude any income or loss generated by activities outside the ordinary and usual course of the business), although some exemptions are available, in particular for "project" companies
recent financial accounts: the most recent financial period reported on in the prospectus must not have ended more than 6 months before the date of the prospectus
sufficient public interest: the Stock Exchange must be satisfied that there will be sufficient public interest in the company
minimum market capitalisation: the expected initial market capitalisation of the company must be at least HK$100 million, with at least HK$50 million held by members of the public
minimum public shareholding: the shares held by the public must constitute at least 25% of the issued shares, although if the market capitalisation of the company is over HK$4 billion, the Stock Exchange may accept a percentage of between 10% and 25%, in addition, there must be a sufficient number of public shareholders; a minimum of 3 shareholders for every HK1 million worth of shares issued in connection with the listing, with a minimum of 100 public shareholders, is usually acceptable
competing businesses of controlling shareholder: if the controlling shareholder (being a person, or group of persons, who holds 35% or more (30% or more for companies incorporated in the People's Republic of China (the "PRC")) of the voting power of the company or who is in a position to control the composition of a majority of the board) has an interest in a business which competes or is likely to compete with the company's business to the extent that a conflict of interest could arise, the Stock Exchange may refuse to list the company and will, in any event, be likely to require a written undertaking from the controlling shareholder, restricting future competition with the listed group
local management presence: the company must have a sufficient management presence in Hong Kong; this will usually require at least 2 of the executive directors to be resident in Hong Kong
independent non-executive directors: the company must also have at least 2 independent non-executive directors, who must have the character, integrity, independence and experience to fulfil their role.
Details of the more important qualifications for listing, including a further discussion of the requirements for a satisfactory trading record, and the additional qualification requirements for the issue of H Shares by companies incorporated in the PRC, are set out in Appendix 1. Back to Top 4. TYPES OF LISTING AND OFFER STRUCTURES There are 3 principal ways of obtaining a new listing: offer of new shares by the company: the proceeds raised by the offer will generally be applied by the company for expansion or reducing debt
offer of existing shares by the existing shareholders: the shareholders, and not the company, will receive the proceeds raised by the offer of existing shares. As an offer of existing shares on its own may be viewed as evidence of a lack of confidence in the company, an offer of existing shares is often combined with an offer of new shares
introduction: this involves an application for listing of securities already in issue, where no marketing arrangements are required because the securities are already sufficiently widely held by the public that the Stock Exchange is satisfied about their marketability.
Offers of new shares must generally be fully underwritten. Large offers usually also involves a placing of a substantial proportion of the offered shares to institutional investors, often internationally, in conjunction with an international roadshow. The public offer is normally made by way of a fixed price offer made to the public in Hong Kong over a 3 day period, although in some cases, the offer price may be fixed after the commencement of the public offer. Back to Top 5. PARTIES INVOLVED The principal parties involved in a listing and their respective roles are described below. 5.1 Company and its directors The directors are responsible for the accuracy of the information in the prospectus and may incur personal liability if the prospectus contains any material misstatements or omissions or is otherwise misleading to investors. No distinction is made between the responsibility assumed by executive and non-executive directors. A significant time commitment will be required of the executive directors and their staff during the period leading up to the listing. 5.2 Sponsor A company seeking a new listing is required to appoint a sponsor, which will act as the principal contact with the Stock Exchange, and will, together with the other professional advisers involved, advise the company on all the strategic and procedural matters relating to the listing. The Stock Exchange encourages the company to retain its sponsor for at least 1 year (3 years in the case of a PRC company) after its listing. 5.3 Underwriters All new issues are generally require to be fully underwritten. The lead underwriter (usually the sponsor) and its lawyers will be closely involved in the preparations for the offer. In the event of a shortfall in applications, the underwriters must take up such shortfall subject to the terms of the underwriting agreement. 5.4 Lawyers Both the company and the underwriters will appoint lawyers to advise them in respect of the listing. The underwriter's /sponsor's lawyers will be responsible for preparing the underwriting agreement and verifying the information in the prospectus. Additional lawyers may become involved if the offer is to be made in other countries (e.g. the USA) or if the company's business is wholly or partly outside of Hong Kong. Back to Top 5.5 Accountants An accountant's report must be included in every prospectus. The report will generally be prepared by the company's auditors and will report on the trading results for the last 3 financial years and also the latest balance sheet. Where the prospectus contains a profit forecast, the accountants are also required to separately report on this. The accountant's report must generally be unqualified. 5.6 Property valuers The prospectus must contain a valuation of the company's property interests (both within and outside Hong Kong) by suitably qualified and experienced valuers. 5.7 Receiving banker A receiving banker will be appointed to make available at its branches, the prospectus and the application forms and to collect and process the application forms and clear the accompanying cheques received from applicants. 5.8 Share registrar The registrar processes applications under the offer, prepares share certificates and maintains the register of members of the company. If the company is incorporated in an overseas jurisdiction (e.g. Bermuda or the Cayman Islands), there will be a principal share registrar in the country of incorporation as well as a branch share registrar in Hong Kong. 5.9 Public relations company A public relations adviser will be appointed to assist with the public relations aspect of the listing. Back to Top 6. PRINCIPAL STEPS AND TIMING 6.1 Principal steps The principal steps involved in the listing are: appointing advisers: including sponsor/underwriter, lawyers, accountants, valuers, receiving banker, share registrar and public relations consultant
reorganising the group: review the structure of the group and restructure it if necessary - this often involves establishing a new holding company and one or more intermediate holding companies to comprise a distinct group of companies which are to be the "listed group"
offer structure: review and agree on the structure of the offer and identify potential issues
preparing financial information and reports: including audited accounts, accountants' report and profit forecast
property valuations: prepare full valuations of all the group's properties
seeking waivers: apply to the Stock Exchange for any compliance waivers required, in particular, for future related party transactions involving the listed group and its officers, shareholders and their associates
preparing corporate documents: including directors' contracts and shareholder and board resolutions
preparing and verifying prospectus: including incorporating the necessary financial information and reports, detailed drafting, liaising with the Stock Exchange and addressing its comments on the draft prospectus; comprehensive verification of all statements in the prospectus
Stock Exchange approval: submit prospectus and other documents to the Stock Exchange for final approval
underwriting documentation: prepare and negotiate the underwriting agreement and other agreements relating to the offer, including an agreement among underwriters and the receiving bank agreement
the offer: market the offer in Hong Kong or internationally, including relevant foreign law compliance requirements and issue the prospectus to the public
completion of the offer: process applications, calculate the public take-up (and the basis of allotment) and any underwriters' take-up, listing granted, issue share certificates and refund cheques
dealings start: trading on the Stock Exchange commences
Back to Top 6.2 Timing Matters affecting the timing of a listing include: restructuring: a complicated restructuring can take substantial time, especially where negotiations with third parties or regulatory approvals are involved
preparation time for documents: the lead time for preparing the prospectus and other listing documents will depend on the complexity of the deal, but will generally be 3 to 4 months
recent financial statements: the prospectus must be issued within 6 months of the end of the latest financial period reported on in the prospectus
required trade record: the need for the company to have an adequate trade record for the last 3 financial years
market conditions: both general market conditions as well as the performance of the relevant industry sector.
An outline listing timetable is set out in Appendix 2. Back to Top 7. IMPORTANT ISSUES In addition to the qualifications for listing described above, the following important issues will often arise. 7.1 Group restructuring and location of the listing vehicle It is common to undertake a corporate reorganisation in preparation for a listing. This usually includes forming a new offshore holding company, normally in Bermuda or the Cayman Islands. Matters relevant when considering an offshore holding company structure include the location and types of assets held, taxation, asset protection and general investor perception. Matters relevant when selecting an offshore jurisdiction include initial and long-term costs and relevant legal requirements and protections. 7.2 Connected transactions, competition and waivers It is important that a detailed review of the structure of the group and the company's ability to satisfy all of the qualifications for listing and relevant disclosure requirements is undertaken early on as it may be necessary to apply for waivers from the Stock Exchange. "Connected" transactions (between the listed group and its substantial shareholders and directors and their associates) are common and are subject to strict regulation by the Stock Exchange. Shareholders' approval(s) can often be required which may not, however, be practicable to obtain where the transactions occur regularly. Disclosures regarding future connected transactions and an application for a waiver from some of the Stock Exchange's requirements are therefore an important feature of the listing process. Competing businesses are discussed in chapter 3. 7.3 Prospectus It is almost always necessary to issue a prospectus in conjunction with a new listing. The prospectus serves two purposes. From a legal perspective, it must contain all the information required by law and regulation and must be accurate and complete so as to minimise the risk of future claims. Criminal and civil liabilities can arise for a company, its directors and its advisers in relation to a misleading prospectus. It is also a selling document on which the marketing of the shares is based. Balancing these considerations requires skill and experience. The fundamental general disclosure requirement is that a prospectus must contain such information as is necessary to enable an investor to make an informed assessment of the activities, assets, liabilities and financial position of the company, and of the rights attached to the shares in the company. Generally, a prospectus will include details of the offer, a description of the company's business, an accountant's report (which will include details of historical financial information), a profit forecast and a property valuation. The prospectus must be printed in both English and Chinese. Drafts of the prospectus will be circulated to the directors and the company's advisers. In addition, detailed verification of all statements in the prospectus will be undertaken and verification notes prepared. 7.4 Financial information The following financial information will generally be included in a prospectus: historical financial information: the accountants' report will include a summary of the accounting policies adopted, trading results for the last 3 financial years, a statement of audited net tangible assets, details of related party transactions and directors' remunerations, and an opinion on whether the accounts give a true and fair view
indebtedness statement: as at the latest practicable date
working capital statement
profit forecast: this generally extends only to the end of the current financial year. It must be formally reported on by both the auditors and the sponsor and detailed due diligence on the forecast must be undertaken.
Back to Top 7.5 Ownership of assets It will be crucial that the group has unqualified legal title to its principal assets: legal opinions confirming this will be required. Any known problems concerning title should be discussed and dealt with early on, as listing timetables can be delayed because of problems with title. In particular, the Stock Exchange now requires formal title certificates for properties situated in the People's Republic of China (excluding Hong Kong and Macau for this purpose) and is unlikely to accept contractual rights to acquire formal title certificates to important properties. 7.6 Underwriting agreement The underwriting agreement provides that, in the event of a short-fall of acceptances for the issue, the underwriters will take up the short-fall. In certain specified circumstances (including an adverse change in market conditions), the underwriters will have power to terminate the underwriting arrangements. The underwriter will generally charge an underwriting fee of approximately 2.5% of the new issue proceeds. The underwriters will normally sub-underwrite all or part of their underwriting risk. 7.7 Restrictions on controlling shareholders' disposals of shares Controlling shareholders are prohibited from disposing of any of their shares in the company during the first 6 months following listing. Additionally, they are prohibited from disposing of any shares during the subsequent 6 months which would result in their ceasing to be controlling shareholders. 7.8 Listing agreement The company must enter into a Listing Agreement with the Stock Exchange which provides for the post-listing regulatory regime applicable to the company. Post-listing requirements are described in the next chapter. 7.9 Use of proceeds The proposed use of the proceeds of the issue must be disclosed in the prospectus. If the proceeds are not applied for the purposes disclosed in the prospectus, the Stock Exchange may require a public explanation from the company. Back to Top 8. CONTINUING REQUIREMENTS FOR LISTED COMPANIES 8.1 Principal additional regulations The principal additional regulations applicable to listed companies are contained in: the Stock Exchange's Listing Rules and the Listing Agreement signed by the company the Hong Kong Codes on Takeovers and Mergers and Share Repurchases the Securities (Disclosure of Interests) Ordinance the Securities (Insider Dealing) Ordinance the Model Code for Securities Transactions by Directors of Listed Companies.
8.2 Management and governance Various requirements are imposed relating to management and governance. In particular, directors must fulfil fiduciary duties and duties of skill, care and diligence to a standard at least equivalent to those established by Hong Kong law. Specifically, a director is required to act honestly and in good faith in the interest of the company as a whole, to act for a proper purpose, to avoid actual and potential conflict of interests and disclose fully his interests in contracts with the listed group, and to supply such degree of skill, care and diligence as may be expected of a person of his knowledge and experience holding his office. 8.3 Disclosure of information and confidentiality Listed companies are under a general duty of disclosure to inform the Stock Exchange and its shareholders as soon as reasonably practicable of any material developments or price sensitive information relating to the company. This obligation is generally satisfied by a press announcement. Circumstances may arise from time to time (e.g. when negotiations for an acquisition are in progress) where the information is price sensitive but an announcement would be premature or inappropriate. In these circumstances, strict confidentiality must be maintained. Listed companies are also subject to numerous disclosure requirements in relation to matters such as announcing its financial results, dividends and changes to the company's capital structure or its constitutional documents. Announcements and circulars relating to various specified subjects should be given to the Stock Exchange in draft form for its review before they are released. 8.4 Financial disclosure Listed companies must prepare an annual report and audited accounts within 5 months of the end of their financial year. These must be circulated to shareholders not less than 21 days before the company's annual general meeting which must be held within 6 months of the end of each financial year. The information required by the Listing Agreement to be included in the accounts is very detailed and includes information about customers and suppliers, directors' interests in the company's shares and any contracts with the company, and particulars of significant contracts between the company and its controlling shareholder. The company must also publish a preliminary announcement of its full-year results. This will generally be done before the annual report is forwarded to shareholders. An interim report must also be published in the newspapers and sent to shareholders within 3 months of the end of the interim period. The interim report does not have to be audited and no balance sheet is required. Back to Top 8.5 Acquisitions, disposals and connected transactions The Listing Rules specify certain thresholds at which material transactions entered into by a listed company require either disclosure to shareholders (by way of a circular) or both disclosure and shareholders' approval(s). In outline, the relevant tests compare the consideration payable or receivable pursuant to the transaction against the assets of the listed company and compare the value of the net assets, or net profit, of the business being acquired / realised, with the net assets or net profits (as appropriate) of the listed group. The categories of regulated transactions are: very substantial acquisitions: this is an acquisition where any of the tests produces a ratio of 100% or more, or the acquisition will result in a change of control through the introduction of a new majority shareholder or group of holders. The acquisition must be made conditional upon shareholders' approval(s), and a shareholder circular or a new listing document must be prepared. Shareholders who have an interest in the transaction are normally not allowed to vote.
major transaction: this is an acquisition or realisation where any of the tests produces a ratio of 50% or more. The company is required to issue a press announcement and a circular and the transaction must be made conditional upon shareholders' approval(s). Again, shareholders who have an interest in the transaction are normally not allowed to vote.
discloseable transaction: this is an acquisition or realisation where any of the tests produces a ratio of between 15% and 50%. Again, a press announcement and circular must be issued but the transaction is not required to be made conditional upon shareholders' approval(s).
share transaction: this is an acquisition where all tests produce a ratio of less than 15%, but the consideration includes the issue of new shares for which listing will be sought. A press announcement is the only requirement.
Transactions between a listed company or any of its subsidiaries and any "connected person" (which include a director, chief executive, substantial shareholder (holding 10% or more of the shares), promoter or supervisor of the company or any of its subsidiaries or an associate of any of them) are also regulated. A connected transaction may require, depending upon the circumstances, independent shareholders' approval(s) and/or a circular to be sent to shareholders setting out details of the transaction, a valuation or accountant's report (where applicable) and an opinion by an independent expert as to whether the transaction is fair and reasonable as for as the shareholders are concerned. Various exemptions are available, including where the transaction falls below certain specified size thresholds. Back to Top 8.6 Issues of securities Shareholders' approval is required for any issue of new equity securities, except where: the shares are offered on a pro rata basis to all shareholders (e.g. pursuant to a rights issue); or the shareholders have previously passed a resolution giving authority (known as a general mandate) to the directors to issue up to 20% of the company's shares in any year (this is the authority pursuant to which placings are generally made).
The laws of the company's jurisdiction of incorporation will also be relevant. 8.7 Securities dealings and transactions The main theme of the Securities (Insider Dealing) Ordinance is that those persons who are "connected with" a listed company (including directors, employees, substantial shareholders or any person with access to "relevant information") must not deal in the listed securities of that company if they have "relevant information" about that company. Relevant information is specific information which is not generally known to the public but which, if it were generally known to the public, would be likely to affect the price of those securities materially. The restrictions apply not only to dealing in securities, but also to situations where a connected person passes on relevant information to other persons or counsels or procures others to deal in such securities, knowing or having reasonable cause to believe that the other person will deal in such securities. It is also insider dealing where a person who knowingly receives relevant information directly or indirectly from a connected person deals in the securities or counsels or procures another person to do so. The Model Code for Securities Transactions by Directors of Listed Companies contains restrictions on dealings by directors and the company's shares and sets a minimum standard of good practice. The provisions of the Model Code include the requirement that directors must not deal in shares for a period of 1 month preceding the preliminary announcement of the company's annual results and the announcement of its interim results. In addition, directors who are aware of any negotiations relating to intended transactions by the company, or have other unpublished price sensitive information, must not deal. Back to Top 8.8 Disclosure of interests in securities The Securities (Disclosure of Interests) Ordinance contains detailed disclosure requirements for substantial shareholders (10% or more) and directors of listed companies in relation to those companies' shares and (in the case of directors) debentures. 8.9 Takeovers The provisions of the Hong Kong Code on Takeovers and Mergers are very detailed. The most important provision is that contained in Rule 26, which requires a mandatory offer for all of the shares of a company to be made where any person (or group of persons acting together in concert): acquires 35% or more of the voting rights of that company; or where he already holds between 35% and 50% of the voting rights, acquires more than 5% in any 12 month period. This requirement can catch the unwary, for instance in the context of a placing of an existing stake followed by a "topping-up" subscription of new shares, in respect of which an application for an exemption is required to be made under the Takeovers Code.
The continuing requirements are very extensive, and we have only provided a brief summary of them above. Back to Top APPENDIX 1 Detailed Qualifications for Listing A summary of the more important qualifications for listing (contained in the Listing Rules) is set out below. These qualifications are not exhaustive and the Stock Exchange may impose additional requirements and in any event retains an absolute discretion to accept or reject an application for listing. Public company: If the company seeking a listing is a Hong Kong company, it must not be a private company within the meaning of section 29 of the Companies Ordinance.
Suitable for listing: Both the company and its business must, in the opinion of the Stock Exchange, be suitable for listing.
Adequate trading record: The issuer must have an adequate trading record under substantially the same management for the last 3 financial years, showing a profit attributable to shareholders in the most recent year of not less than HK$20 million and in respect of the last 2 years of not less than HK$30 million in aggregate (the profits should bot include any income or loss of the company generated by activities outside the ordinary and usual course of its business).
The Stock Exchange expects the trading record to enable the Stock Exchange and investors to make an informed assessment of the management's ability to manage the company's business and the likely performance of the business in the future. The Stock Exchange normally expects the main business or businesses to have been managed by substantially the same people throughout the trade record period. The Stock Exchange also looks for continuity of ownership during the trade record period.
The Stock Exchange may accept a shorter trading period and/or vary or waive the profit requirement for natural resource exploration companies, newly formed "project" companies (e.g. a company formed to construct a major infrastructure project) or, in exceptional circumstances, where the company has a trading record of at least 2 financial years.
This trading record qualification is one which companies proposing to list often find difficulty in fulfilling. The problem is sometimes addressed through the company making an acquisition (i.e. the company acquired a similar or complementary business): the Stock Exchange does, however, look at such acquisitions closely and it may be difficult to satisfy the Stock Exchange that the company meets these requirements where an acquisition has taken place during the trade record period or where the companies comprising the group have been recently organised into a group. The Stock Exchange takes various factors into account when considering a company's application for listing in these circumstances, including:
(a) whether the new business forms a material part of the company's previous business at the time of listing or is expected to make a material contribution to its profit forecast. If not, it may result in a rejection of the listing application
(b) whether the new business is in a similar line to that of the company's business activities and is part of the logical growth trend of the business
(c) whether the company has retained the management of the new business and whether necessary continuity and synergy of the management is provided
(d) the time gap between completion of the acquisition and the proposed listing date - a short gap may be viewed unfavourably
(e) whether the acquisition was made solely for the purpose of satisfying the listing requirements or for the purpose of enhancing the attraction of the company as a new applicant for listing.
In case of doubt, it is advisable to approach the Stock Exchange early for clarification.
Back to Top Recent financial statements: The company's latest financial period reported on by the reporting accountants must not have ended more than 6 months before the date of the prospectus.
Financial year: The Stock Exchange will not normally consider an application for listing from a company which has changed the period of its financial year during the most recent complete financial year (being 12 months) or intends to change the period of its financial year during the period of the profit forecast (if any) or the current financial year, whichever is the longer period.
Sufficient public interest: The Stock Exchange must be satisfied that there will be sufficient public interest in the business of the company and in the shares for which listing is sought.
Public shareholding: The shares held by the public must comprise not less than 25% of all issued shares of the company provided that, if the expected capitalisation at the time of listing is over HK$4 billion, the Stock Exchange will normally accept a percentage of between 10% and 25%. A sufficient portion of the shares must be offered in Hong Kong
Market capitalisation: The expected market capitalisation of the company at the time of listing must be at least HK$100 million, of which at least HK$50 million must be held by the public.
Shareholder spread: There must be an adequate spread of shareholders - as a general guideline, there should be not less than 3 shareholders for each HK$1 million worth of the initial issue, with a minimum of 100 shareholders.
Shareholder's competing businesses: If the controlling shareholder has an interest in a business which competes or is likely to compete (directly or indirectly) with the company's business to the extent there could be a conflict between the controlling shareholder's interests and those of the general body of shareholders of the company, the Stock Exchange may refuse to list the company and will, in any event, be likely to require a written undertaking from the controlling shareholder restricting future competition with the listed group. (In the case of PRC companies, where the controlling shareholder is a PRC governmental body, the Stock Exchange will look closely at the relationship with that governmental body and any related arrangements.) The Stock Exchange may require the company to appoint a sufficient number of independent non-executive directors to ensure the protection of the interests of the general body of shareholders.
No "B Shares": The share capital of the company must not include shares of which the proposed voting power does not bear a reasonable relationship to the equity interest of such share when fully paid (referred to as "B Shares"). The Stock Exchange will not allow the company to issue or list any B Shares other than in exceptional circumstances.
Local management presence: The company must have a sufficient management presence in Hong Kong. This will normally mean that at least 2 of its executive directors must be ordinarily resident in Hong Kong.
Securities freely transferable: The securities for which listing is sought must be freely transferable. Partly paid securities will normally be regarded as fulfilling this condition if dealings in them can take place on an open and proper basis.
Accepted for CCASS: The securities must be accepted for deposit, clearance and settlement in the Central Clearing and Settlement System operated by Hong Kong Securities Clearing Company Limited from the date dealings are to commence.
Back to Top Directors' qualifications/independent non-executive directors: Each director of the company must satisfy the Stock Exchange that he or she has the character, experience and integrity and is able to demonstrate a standard of competence commensurate with his position as a director of the company. And the board of directors must include at least 2 independent non-executive directors, who must have the character, integrity, independence and experience to fulfil their role. In assessing the independence of a non-executive director, the Stock Exchange will take account of the following matters:
(a) the holding of a shareholding interest of not more than 1% of the total issued share capital of the company will not normally operate as a bar to independence, except where the director has received those shares as a gift from, or by means of other financial assistance from, a connected person
(b) save for the interest referred to in (a), the director should normally have no past or present financial or other interest in the business of the company or its subsidiaries and no past or present connections with any connected person of the company, in each case other than as a professional adviser, which, in either case, might affect his exercise of independent judgement
(c) an independent director would not be expected by the Stock Exchange to have any management function in the listed group.
Share registrar: The company must employ an approved share registrar to maintain in Hong Kong its register of members in Hong Kong.
Company secretary: The secretary of the company must be ordinarily resident in Hong Kong and have the requisite knowledge and experience to discharge the functions of secretary. In addition, the secretary should be either a member of the Association of the Institute of Chartered Secretaries and Administrators in Hong Kong, a solicitor, barrister or professional accountant, or an individual, who by virtue of his or her academic or professional qualifications or relevant experience is, in the opinion of the Stock Exchange, capable of discharging those functions.
Application to relate to all securities: Where an application for listing is made in respect of any class of security, the application must relate to all securities of that class issued or proposed to be issued.
Underwriter: The Stock Exchange reserves the right to reject an application for listing if it is not satisfied as to the proposed underwriter's ability to meet its underwriting commitment.
Allocation of securities: Upon the closing of the offering period, the company and the underwriter must adopt a fair basis of allocation of the securities on offer to the public.
Back to Top PRC COMPANIES In addition to, or in substitution for the foregoing requirements, the following principal additional requirements must be satisfied for an application for listing by a PRC company: joint stock limited company: the PRC company must be duly incorporated in the PRC as a joint stock limited company
communication arrangements with PRC regulatory authorities: adequate communication and co-operation arrangements must be in place between the Stock Exchange and the relevant securities and regulatory authorities in the PRC and of any other stock exchange on which the PRC company is listed
sufficient shareholder protection: the Stock Exchange must be satisfied that applicable PRC law and the articles of association of the PRC company provide a sufficient level of shareholder protection to holders of "H Shares" (i.e. RMB denominated shares subscribed for in HK$ and traded on the Stock Exchange)
person to accept service: the PRC company must appoint a person authorised to accept service of process and notices on its behalf in Hong Kong
only local securities traded: only securities registered on the company's Hong Kong register of members may be traded on the Stock Exchange
payments in Hong Kong: in the case of bearer securities, provision must be made for the payment of dividends, interest or any repayment of capital, in Hong Kong, or such other place as the Stock Exchange may agree
Back to Top minimum offer size: shares with an expected market capitalisation of at least HK$50 million (or such higher amount as is required by the following paragraph) must be offered in Hong Kong
H Shares held by public: if at any time there are existing issued shares of the PRC company other than H Shares, then all H Shares must be held by the public except as otherwise permitted by the Stock Exchange and the H Shares held by the public must constitute not less than 10% of the total existing issued share capital of the company, and the aggregate amount of H Shares and other securities which are held by the public must constitute not less than 25% of the total issued share capital. If there are no existing issued securities of the PRC company other than H Shares, then H shares held by the public must constitute not less than 25% of the total existing issued share capital of the company, provided that the Stock Exchange may accept a threshold of between 10% and 25% where the H Shares have an expected market value of over HK$4 billion
company secretary: the secretary of the company need not be ordinarily resident in Hong Kong, but must still satisfy the other eligibility conditions
independent non-executive directors: the independent non-executive directors of the PRC company must, in addition to the general requirements detailed above, also be able to demonstrate an acceptable standard of competence and adequate commercial or professional experience to ensure that the interests of the shareholders will be adequately represented. In addition, supervisors of a PRC company must have the character, experience and integrity and be able to demonstrate a standard of competence commensurate with the position as supervisors
connected persons: if requested by the Stock Exchange, a PRC company must make written representations to the Stock Exchange explaining its legal, commercial or other relationships with various associates or other persons and must satisfy the Stock Exchange that such persons should not be treated as "connected persons" for the purposes of the connected transaction provisions of the Listing Rules.
Back to Top APPENDIX 2 Indicative Listing Timetable This timetable is indicative only and assumes a straightforward restructuring. | Company | Sponsor | Accountants | Lawyers | 15 weeks or more before offer | Appoint advisers | x | x | | | Detailed timetable, list of parties and documents | | x | | | Considers significant issues | x | x | x | x | Review group structure | x | x | x | x | Commence audit work and accountants' report | x | | x | | 10 - 15 weeks or more before offer | Commence legal work and documentation | | | | x | Prepare group restructuring | x | | x | x | Start prospectus drafting | | x | x | x | Continue work on accountants' report | | | x | | Commence profit/working capital forecasts | | | x | | Preliminary contact with Stock Exchange | | x | | | 5 - 10 weeks or more before offer | Drafting meetings on prospectus | x | x | x | x | Advance booking with Stock Exchange | | x | | | Property title certificates | | | | x | Prepare profit/working capital forecasts | x | x | x | | 0 - 5 weeks or more before offer | Review accountants' report and forecasts | x | x | x | x | Liaise with Stock Exchange | | x | x | x | Drafting meetings on prospectus | x | x | x | x | Settle underwriting agreement | x | x | | x | Prepare PR/investor presentations | x | x | | | Verification of prospectus | x | x | x | x | Listing Committee hearing | | x | | x | Terms of offer finalised | x | x | | | Underwriting/sub-underwriting | x | x | | | Offer week | Registration of prospectus | | | | | Prospectus available to public | | | | | Open and close application lists | | | | | After offer week | Basis of allocation determined | x | x | | | Share certificates and refund cheques despatched | x | | | | Dealings start | | x | | |
Whilst every effort has been made to ensure the accuracy of this publication, it is intended to provide general guidance and not definitive legal advice. |
