Proposed amendments to the Listing Rules relating to PRC issuers
Introduction
On
24 February 2023, the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) published a
consultation paper on amendments to the Rules Governing the Listing of
Securities on the Stock Exchange (the “Listing
Rules”) following recent updates and changes to PRC regulations and other
proposed rule amendments relating to PRC issuers. The consultation period ended
on 24 March 2023.
Current legal framework for PRC issuers
The
legal framework for PRC issuers having their shares listed overseas was
established in the early 1990s, which is mainly governed by the Company Law of
the PRC, the Special Regulations on the Overseas Offering and Listing of Shares
by Joint Stock Limited Companies (國務院關於股份有限公司境外募集股份及上市的特別規定) issued by the State Council of the PRC on 4
August 1994, as amended, supplemented or otherwise modified from time to time
(the “Special Regulations”) and the
Mandatory Provisions for Companies Listing Overseas issued on 27 August 1994 by
the State Council Securities Policy Committee and the State Commission for
Restructuring the Economic System (the “Mandatory
Provisions”)(set forth in Zheng Wei Fa (1994) No. 21).
Key provisions of current regulations
Under
the Special Regulations, the Mandatory Provisions provide the standard
provisions required to be included in PRC issuers’ articles of association to
regulate their activities and govern the rights and obligations of the PRC
issuers and their shareholders (including shareholder protection requirements).
Under
the Mandatory Provisions, holders of domestic shares and H shares (which are
both ordinary shares) are deemed to be different classes of shareholders. The
Mandatory Provisions also requires a PRC issuer’s proposal to vary or abrogate
the rights of one class of shareholders to be subject to special resolutions at
(i) a shareholder meeting and (ii) separate class meetings of holders of
domestic shares and of H shares (the “Class
Meeting Requirement”). The Special Regulations or the Mandatory Provisions
also provide that disputes between H shareholders shall be resolved by
arbitration.
In
this connection, Appendix 13D was introduced in 1993 to the Listing Rules by
requiring PRC issuers’ articles of association to include the Mandatory
Provisions and additional provisions which elaborate the requirements of the
Mandatory Provisions. The Listing Rules also introduced Chapter 19A in the same
year to provide additional and modified requirements to reflect the shareholder
protection requirements under the Mandatory Provisions.
Recent changes on PRC regulations
On
17 February 2023, the State Council and the China Securities Regulatory
Commission (“CSRC”) announced the
implementation of the Decision of the State Council to Repeal Certain
Administrative Regulations and Documents (國務院關於廢止部分行政法規和文件的決定)
issued by the State Council of the PRC and the Trial Administrative Measures of
Overseas Securities Offering and Listing by Domestic Companies (境内企業境外發行證券和上市管理試行辦法)
and related guidelines issued by the CSRC (the “New PRC Regulations”) on overseas listing, which took effect from
31 March 2023, whereby the Special Regulations and the Mandatory Provisions
were repealed.
Under
the New PRC Regulations, PRC issuers shall formulate their articles of
association in line with the Guidelines for the Articles of Association of
Listed Companies (上市公司章程指引) issued by the CSRC (the “Guidelines”) and the existing Mandatory Provisions will cease to
apply. Holders of domestic shares and H shares (both ordinary shares) are no
longer deemed as different classes of shareholders, and therefore the Class
Meeting Requirement would no longer apply.
Consequential amendments to the Listing Rules
The
Stock Exchange proposed, inter alia, the following consequential amendments to
the Listing Rules to reflect the above changes to the PRC regulations.
Removing requirements relating to issuance and repurchase of shares
Rules
19A.25, 19A.38 and Paragraphs 56 and 65(a) of Rule 19A.42 will be amended to
remove the class meeting requirement relating to the issuance and repurchase of
shares by PRC issuers following the repeal of the Special Regulations and the
Mandatory Provisions. The Rules will be amended to align with the requirements
applicable to overseas issuers as follows:
1.
require
the issuance or repurchase of shares to be approved by ordinary resolution
(rather than special resolution) in general meeting;
2.
exempt
shareholders’ approval requirement for pre-emptive issuance of shares; and
3.
remove
the exemption for issuance of shares under a PRC issuer’s plan adopted at the
time of its establishment and implemented within 15 months from the date of the
approval by the CSRC, which is specified in the Mandatory Provisions and not
the New PRC Regulations.
Definitions of “domestic shares” and “H shares”
Under
the proposed amendments to the Listing Rules, the definition of “H shares”
under Rule 19A.04 of the Listing Rules will be amended to refer to shares of a
PRC issuer which are listed on the Exchange. The definitions of “domestic
shares” (being shares issued by a PRC issuer in Renminbi), “foreign shares”
(being shares issued by a PRC issuer in a currency other than Renminbi) and
“overseas listed foreign shares” under Rules 1.01 and 19A.04 of the Listing
Rules are no longer necessary. Corresponding amendments will be made to Rule
19A.38A, Paragraph 54(7) of Rule 19A.42 and Paragraph 44(5) of Rule 19A.44 of
the Listing Rules.
Rule
13.26(2) of the Listing Rules, which provides that a PRC issuer shall not apply
for the listing of any foreign shares on a PRC stock exchange unless the
Exchange is satisfied that the relative rights of the holders of overseas
listed foreign shares are adequately protected, will be removed. This
requirement is unnecessary as all H shares of a PRC issuer must be listed on
the Exchange and the rights of the holders of H shares and other shares, which
are all ordinary shares, are substantively the same regardless of the locations
where the relevant shares are listed.
Removing arbitration clause
Following
the repeal of the Mandatory Provisions, Rules 19A.52(2), 19A.54(3), 19A.55(3)
and Paragraph 65(e) of Rule 19A.42 of the Listing Rules which require the
arbitration as a means for dispute resolution will be removed.
After
the removal, shareholders of a PRC issuer may enforce their rights under the
Articles in the same approach as shareholders of other overseas issuers. In
particular, they may seek to enforce their rights through commencing legal
proceedings in (i) a court of the issuer’s place of incorporation or (ii) a
Hong Kong court.
Requirements relating to the Articles of Association (the “Articles”)
Following
the repeal of the Mandatory Provisions, Appendix 13D (section 1) of the Listing
Rules which requires PRC issuers’ articles of association to include the
Mandatory Provisions and the ancillary provisions will be removed. Rules
9.11(20) and 13.51(1) of the Listing Rules will also be amended to remove the
references to Appendix 13 of the Listing Rules.
New filing requirements
Under
the current regime, Rule 19A.22A of the Listing Rules requires a PRC new
applicant to submit a copy of the CSRC’s approval of the listing of the
applicant on the Exchange.
The
New PRC Regulations introduce a new filing regime to replace the existing CSRC
approval system. The new filing regime applies to both PRC issuers and
overseas-incorporated issuers with principal operations in the PRC.
Accordingly,
it is proposed that Rule 19A.22A of the Listing Rules will be repealed while
new rules in Chapter 9 will be added to require new applicants (whether
incorporated in the PRC or other jurisdictions) to submit, at least four clear
business days before the expected hearing date, a notification issued by the
CSRC confirming their completion of the PRC filing procedures, where the new
applicant’s application for listing on the Exchange is required to be filed
with the CSRC.
Conclusion
The
proposed amendments aim to remove or modify certain existing requirements in
the Listing Rules specific to PRC issuers which are no longer applicable
following recent updates to PRC laws. It is anticipated that the amendments
would align the treatment of PRC issuers with that of overseas issuers, which
allows a more consistent regulatory framework governing all issuers with
different places of incorporation.
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Important: The law and
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Published by ONC Lawyers © 2023 |
