The HKEx has received 48 non-duplicate responses from a broad range of stakeholders who were representatives of the stakeholders in the Hong Kong capital market, including professional bodies, law firms, listed issuers and corporate finance firms. All proposals referred to in the March 2021 consultations received support from a majority of the respondents, with some general and specific suggestions and comments. Thus, the HKEx will adopt all proposals with minor revisions with effect from 1 January 2022.
The following key changes will be introduced under the new listing regime for overseas issuers:
- Shareholder protection standards: one set of core shareholder protection standards will apply to all issuers to ensure consistent protection of all investors.
- Dual primary listing: Grandfathered Greater China Issuers and Non-Greater China Issuers eligible for secondary listing may directly apply for a dual primary listing on the HKEx while retaining their non-compliant weighted voting rights (WVR) and/or variable interest entity (VIE) structures.
- Secondary listing: a Greater China Issuer without a WVR structure may seek a secondary listing on the HKEx (i) without demonstrating it is an “innovative company”; and (ii) with a lower market capitalization requirement.
Shareholder protection standards
Under the new arrangement, one set of core shareholder protection standards will be adopted for all listed issuers concerning: (i) the notice and conduct of general meetings; (ii) members’ right (including HKSCC) to remove directors, requisition a meeting, vote, speak and appoint proxies or corporate representatives; (iii) the reservation of auditor, etc. to a committee independent of the board of directors of a company or a majority of the shareholders and the reservation of certain other material matters to super-majority votes by shareholders; (iv) restrictions on the term of a director appointed to fill a casual vacancy; (v) availability of the shareholders’ register for inspection; and (vi) restrictions on shareholder voting on certain matters required by the Main Board Listing Rules. Accordingly, the distinction between Recognised Jurisdictions and Acceptable Jurisdictions will be removed. Existing listed issuers are required to ascertain whether they are in full compliance with the core standards. Otherwise, they have until their second annual general meeting following 1 January 2022 to make necessary amendments to their constitutional documents to conform to the core standards.
Dual primary listing
Under the new arrangement, Grandfathered Greater China Issuers2 and Non-Greater China Issuers will be permitted to directly seek a dual primary listing on the HKEx without amending their existing WVR or VIE structures even though the WVR or VIE structures do not meet the relevant listing requirements applicable to primary listing applicants, provided that they meet the current suitability and eligibility requirements of Chapter 19C of the Main Board Listing Rules for Qualifying Issuers seeking a secondary listing with a WVR structure.
The expansion of the listing regime by allowing eligible Grandfathered Greater China Issuers and Non-Greater China Issuers to directly seek a dual primary listing (instead of merely seeking a secondary listing) on the HKEx is expected to pave the way for more US-listed Greater China companies from emerging and innovative sectors with WVR or VIE structures to become primary listed in Hong Kong. In light of the heightened regulatory scrutiny and de-listing threat of US-listed Greater China companies amid mounting Sino-US tensions, 2021 has seen a continuing trend of blockbuster homecoming listings of US-listed Greater China technology companies seeking a secondary listing on the HKEx. Baidu, Inc. (NASDAQ: BIDU and HKEx: 9888) staged its homecoming IPO on the HKEx in the first quarter of 2021, raising approximately USD3.1 billion in gross proceeds from the global offering. A few days later, Bilibili Inc. (NASDAQ: BILI and HKEx: 9626) raised approximately USD2.6 billion in gross proceeds from the global offering in its Hong Kong IPO debut. Both Chinese technology companies were controlled through WVR structures and were incorporated in the Cayman Islands. Going forward, the new arrangement will encourage US-listed Chinese technology giants to seek dual primary listing in Hong Kong (instead of secondary listing).
Under the new arrangement, secondary listing requirements for Greater China Issuers without WVR structures will be relaxed by (i) removing the “innovative company” condition; and (ii) lowering the market capitalisation requirement to (A) HKD3 billion at the time of the secondary listing (if they can demonstrate a track record of good regulatory compliance of at least five full financial years on a Qualifying Exchange) or (B) HKD10 billion at the time of the secondary listing (if they can demonstrate a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange).
The HKEx may reject a secondary listing application if a material part of the applicant’s business was listed on the primary listing market by way of a reverse takeover.
The relaxed quantitative eligibility requirements for secondary listing will further drive the momentum of the Chinese homecoming IPO boom in the Hong Kong capital market. The use of Cayman Islands listing vehicles continues to play a paramount role in facilitating US-listed Chinese companies seeking a secondary listing on the HKEx.
On 3 December 2021, Chinese technology giant Didi Global announced that it has begun preparations to delist from NYSE and subsequently relist in Hong Kong in light of regulatory concerns on cybersecurity rules for companies listing abroad.
It is expected that China’s new data security law and the Chinese government’s tightened cybersecurity review on the foreign listing of Chinese technology companies will give rise to a trend of US-listed Chinese technology companies delisting from the US and re-listing in Hong Kong.
The role Cayman Islands companies play in the Chinese homecoming IPO boom is testament to Cayman Islands companies being a favourable choice of listing vehicle for companies with WVR structures. Cayman Islands vehicles offer tax neutrality, regulatory flexibility, and cost efficiency for listing applicants to carry out pre-listing restructuring and reorganisation plans. Company law and regulations in the Cayman Islands are also flexible and adaptable to the rules of stock exchanges all over the world, including accommodating the WVR structures and providing safeguards for shareholder rights.
With experts who specialise in the laws of the Cayman Islands, the British Virgin Islands and Bermuda, our Hong Kong Capital Markets team is well positioned to advise clients on their IPO and listing business on the Hong Kong, US, Singapore and many other internationally recognised stock exchanges.
1 Comprising NYSE, NASDAQ and the Main Market of the LSE (and belonging to the UK Financial Conduct Authority’s “Premium Listing” segment)
2 Being Greater China Issuers that were: (a) primary listed on a Qualifying Exchange on or before 15 December 2017; or (b) controlled by corporate WVR beneficiaries as at 30 October 2020 and primary listed on a Qualifying Exchange after 15 December 2017, but on or before 30 October 2020