Listing Rules amendments to codify general waivers and principles relating to IPOs and listed issuers
Introduction
On 28 August 2020, the Stock Exchange of
Hong Kong Limited (the “Stock Exchange”)
published conclusions to the consultation paper on “Codification of General
Waivers and Principles relating to initial public offerings (the “IPOs”)
and Listed Issuers and Minor Rule Amendments”. Amendments will be made to both
the Main Board Listing Rules and the GEM Listing Rules to, among others,
codify the waivers from the Main Board Listing Rules and the GEM Listing Rules
which were approved by the Securities and Futures Commission of Hong Kong (the “SFC”)
pursuant to Rule 2.04 of the Main Board Listing Rules or Rule 2.07 of the GEM
Listing Rules (the “General Waivers”) and
waivers which have been granted on multiple occasions to new applicants and/or
listed issuers on the basis of similar principles and conditions (the “General
Principles”). The proposed amendments will take effect from 1
October 2020.
Codification of
General Waivers
The key changes to the Listing Rules
include the codification of some General Waivers to:
1.
exempt
bonus or capitalisation issues by People’s Republic of China (the “PRC”)
incorporated issuers from shareholders’ approvals in general meetings and
separate class meetings, if the issuers make bonus or capitalisation issues to
existing shareholders on a pro rata basis;
2.
modify
the calculation of consideration ratio for a PRC incorporated issuer whose
domestic shares are listed on a PRC exchange, where the market capitalisation
of the PRC listed domestic shares will be determined based on the average
closing price of those shares for the five business days immediately preceding
the transaction; and
3.
allow
the listed issuer’s stock code to be displayed prominently in the corporate or
shareholder information section of its financial reports.
Codification of
General Principles
Disclosure of financial information of acquisition
of businesses after the Track Record Period
After the amendment, application for
waivers from the requirements regarding the disclosure of financial information
of subsidiaries or businesses acquired or to be acquired after track record
period may be made by a new applicant if:
1.
all of
the percentage ratios for the acquisition are less than 5%;
2.
where
the acquisition will be financed by the proceeds from the IPO, the new applicant
has obtained the requisite exemption from the SFC; and
3.
where
the new applicant’s principal activities involve acquisition of equity
securities, the new applicant does not have control or significant influence
over the underlying company or business. Alternatively, where a business or a
subsidiary is acquired by a new applicant, the historical financial information
is unavailable and it would be unduly burdensome to obtain it, and the new
applicant has disclosed the information required for the announcement for a
discloseable transaction in its listing document.
Disclosure of financial information of the
overseas banking companies
Waiver will be added for overseas banking
companies from strict compliance of the requirements under Rule 4.10 of the
Main Board Listing Rules (Rule 7.11 of the GEM Listing Rules) regarding the
disclosure of financial information, if the applicant can demonstrate that (1)
it is regulated by a foreign regulator similar to the Hong Kong Monetary
Authority, which provides adequate supervision, and (2) alternative financial
disclosure in its listing documents regarding capital adequacy, loan quality,
loan provisioning and guarantees, contingencies and other commitments has been
made in listing document, which is sufficient for potential investors to make a
fully informed investment decision.
Publication of preliminary results
announcements and distribution of annual or interim reports
After the amendment, it is clarified that
newly listed issuers are required to publish results announcement and
distribute financial reports when they would ordinarily be required to publish
or distribute under the Main Board Listing Rules (or GEM Listing Rules). It is
codified that a waiver regarding the publication and distribution requirements
of results announcement and financial reports under Main Board Listing Rules
(or GEM Listing Rules) will only be granted if a new applicant has disclosed
the same level of financial information as that required under the relevant
rules in the listing document.
Other General Principles
Codification of other General Principles
include:
1.
the
waiver from the requirements regarding the change of financial year period;
2.
the
waiver from disclosing actual consideration of aircrafts acquired by airline
operator;
3.
in the
case of a spin-off of a listed issuer’s subsidiary (the “SpinCo”),
allowing the issuer to determine the share option scheme limit of the SpinCo
with reference to the SpinCo’s shares in issue as at the date of the SpinCo’s
listing;
4.
the
waiver of the exercise price requirement for issuers dually listed on the Stock
Exchange and a PRC exchange; and
5.
exempting
banking or insurance companies from including a working capital statement,
subject to appropriate alternative disclosures in listing documents and circulars.
New Guidance Letter regarding
requirements of a
company secretary
Under Rule 3.28 of the Main Board Listing
Rules (Rule 5.14 of the GEM Listing Rules) (“R3.28”),
a listed issuer is required to appoint as its company secretary an individual
who, by virtue of his academic or professional qualifications or relevant
experience, is, in the opinion of the Stock Exchange, capable of discharging
the functions of company secretary. In short, the Stock Exchange generally
considered a Hong Kong certified public accountant, a Hong Kong solicitor or
barrister or a chartered secretary is a person holding an acceptable
qualification. The Main Board Listing Rules (as well as the GEM Listing Rules)
also set out exhaustive criteria in assessing the relevant experience of an
individual as company secretary. The Stock Exchange has in the past granted
R3.28 waivers to allow issuers’ existing employees who are familiar with their
operations and boards to be the issuer’s company secretary for a specified
period.
After considering the comments received,
the Stock Exchange decided not to proceed with the proposed amendment. Instead,
the Stock Exchange has published a new guidance letter HKEX-GL108-20 (the “Guidance
Letter”) to provide clarifications and guidance on the application
of R3.28 waivers. According to the Guidance Letter, factors that will be
considered by the Stock Exchange when granting a R3.28 waiver include:
1.
whether
the issuer has principal business activities primarily outside Hong Kong;
2.
whether
the issuer is able to demonstrate the need to appoint a person who does not
have the acceptable qualification nor relevant experience as a company
secretary; and
3.
why the
directors consider the person to be suitable to act as the issuer’s company secretary.
A R3.28 waiver, if granted, will be for a
fixed period of time and on the conditions that the proposed company secretary
must be assisted by a person who possesses the qualifications or experience as
required under R3.28 and is appointed as a joint company secretary throughout
the waiver period. The Stock Exchange has also tightened the waiver condition
whereby a R3.28 waiver will be revoked if the issuer has committed material
breaches to the rules.
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Important: The law and
procedure on this subject are very specialised and complicated. This article
is just a very general outline for reference and cannot be relied upon as
legal advice in any individual case. If any advice or assistance is needed,
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