Hong Kong Stock Exchange Publishes Consultation Conclusions on Proposals to Enhance Listing Competitiveness

Weighted voting rights (WVR)

Financial eligibility for listing

Market capitalisation: (A) at least HK$40 billion; or (B) at least HK$10 billion, and revenue for the most recent audited financial year is at least HK$1 billion

Lower the thresholds to market capitalisation: (A) at least HK$20 billion; or (B) at least HK$6 billion, and revenue for the most recent audited financial year is at least HK$600 million

Voting power

A class of shares conferring WVR must not entitle the beneficiary to more than 10 times of the voting power of ordinary shares, on any resolution tabled at the issuer’s general meetings (i.e., 10:1 WVR ratio cap)

Allow a higher weighted voting ratio cap of 20:1 if the applicants have a market capitalisation of at least HK$40 billion at the time of listing

Minimum economic interest at listing

WVR beneficiaries must beneficially own, collectively, at least 10% of the underlying economic interest in the applicant’s total issued share capital at the time of its initial listing (a lower percentage may be accepted on a case-by-case basis)

Allow lower minimum underlying economic interest beneficially owned by WVR beneficiaries, only if such underlying economic interest, at the time of the applicant’s initial listing:

(a) represents at least 5% of the applicant’s total issued share capital (excluding treasury shares); and

(b) has an amount of at least HK$4 billion.

This means:

(a) Applicants with over HK$40 billion market cap: WVR shareholding may fall below 10%, provided the WVR beneficiaries hold an economic interest of at least HK$4 billion

(b) Applicants with HK$80 billion or more market cap: WVR shareholding may be as low as 5%

Innovativeness

An applicant must demonstrate that it is an “innovative” company for listing with WVR

Refine the routes that applicants can use to demonstrate that they are innovative companies into, namely, Route A and Route B. An applicant seeking a listing with a WVR structure would be expected to demonstrate that either:

Route A (Technology): it adopts technologies that are either novel, in themselves, or essential to the novelty of its core business; or

Route B (Business model): its success is attributable to the application, to its core business, of a new business model that may not necessarily be enabled by technology. Where such a business model is enabled by technology, that technology does not have to be novel or essential to the novelty of the issuer’s core business.

Innovative Characteristics

Route A

1. Adopts technologies that are either novel in themselves, or essential to the novelty of its core business. The Stock Exchange may still consider an applicant to be innovative if the company is the only one, or one of the first few in its industry, to adopt the new technologies. The Stock Exchange would normally expect an innovative company under Route A to possess more than one of the following innovative characteristics:
   1. Research and development (R&D) is a significant contributor of its expected value and constitutes a major activity and expense
   2. The company’s success is attributable to its intellectual property (IP)
   3. Has an outsized market cap / intangible asset value relative to its tangible asset value

Route B

1. The company’s success is attributable to the application, to its core business, of a new business model that may not necessarily be enabled by technology. The Stock Exchange may still consider an applicant to be innovative if the company is the only one, or one of the first few in its industry, to adopt the new business model. The Stock Exchange would normally expect an innovative company under Route B to possess more than one of the following innovative characteristics:
   1. Has a compound annual growth rate (CAGR) of revenue (or other operational metrics) of at least 30% over the track record period, which is calculated by reference to annual revenue over the three financial years of the applicant’s track record period.
   2. Holds a relatively prominent position in its industry

Applicants that are biotech companies or specialist technology companies are presumed to be innovative if they meet the requirements under Chapter 18A for biotech companies and Chapter 18C for specialist technology companies, respectively

In addition to applicants that are Specialist Companies (i.e., a biotech company or a specialist technology company) seeking to list under the applicable specialist chapters (under the existing regime), the following groups of applicants that adopt technologies (under Route A) would be presumed to meet the innovative company requirements (even if they do not seek to list under a specialist chapter, i.e., Chapter 18A or 18C):

(a) Applicants that:

(i) operate in the biotech industry, have been primarily engaged in the R&D of developing at least one core product, and have commercialised that product;

(ii) have continued the R&D development of the core product during the 12 months prior to listing; and 

(iii) have ownership of IP rights relating to the core product (Qualified Biotech Applicants)

(b) Applicants that:

(i) are primarily engaged in the R&D of, and have commercialised, specialist technology product(s) within an acceptable sector of a specialist technology industry; and

(ii) meet the R&D expenditure percentage test designed for a commercial company under Chapter 18C (Qualified Specialist Technology Applicants)

External validation

An applicant must have previously received meaningful third-party investment from at least one sophisticated investor.

Biotech companies and specialist technology companies that seek to list with WVR are presumed to satisfy the external validation requirement if:

• in the case of a biotech company, it complies with the requirement that sophisticated investors retain an aggregate 50% of their investment at the time of listing for a period of at least six months post-IPO; and
• in the case of a specialist technology company, its “key persons” and investors meet the requirement that they do not dispose of its listed securities for a set time period after the company’s listing.

Provide further guidance on the meaning of “sophisticated investors” for the purpose of external validation requirement such that the Stock Exchange:

• would assess whether an investor is sophisticated on a case-by-case basis with reference to its relevant investment experience, and its knowledge and expertise in the relevant field, which could be demonstrated by its net assets, assets under management, size of its investment portfolio, or track record of investments. With regard to the timing of assessment of an investor’s assets under management, fund size, or investment portfolio size, it should be given as of (i) a date which is no more than six months prior to the date of signing of the definitive agreement for the investor’s relevant investment in the applicant; and (ii) a date which is no more than six months prior to the date of the listing application; and
• would normally consider an investor that meets any of the qualification criteria under the relevant guidance for SPACs and specialist technology companies as sophisticated for this purpose.

For Route A applicants, an investment from at least one sophisticated investor would qualify as meaningful third-party investment provided it is more than a token investment. No quantitative minimum investment threshold would be imposed.

For Route B applicants, the Stock Exchange will provide more certainty on what constitutes “meaningful third-party investment”:

• The Stock Exchange would normally expect that the applicant has previously received investment from at least one sophisticated investor, which, together with any proceeds from offer shares issued to sophisticated investor(s) at the time of listing, would result in the investor(s) holding, in aggregate, such amount of shares equivalent to at least 10% of the applicant’s issued share capital at the time of listing; and
• the Stock Exchange may accept a lower percentage, on a case-by-case basis, if the investment amount is substantial in absolute dollar terms, taking into account whether the applicant has an expected market capitalisation of over HK$20 billion at the time of its initial listing and such other factors as the Stock Exchange may consider appropriate.

Issuers Listed Overseas

Qualification requirements for secondary listing

An overseas issuer seeking a secondary listing on the Stock Exchange with a WVR structure must have a track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange (i.e., The New York Stock Exchange LLC, Nasdaq Stock Market, or the Main Market of the London Stock Exchange plc) and must have either:

1. an expected market capitalisation of at least HK$40 billion at the time of listing (i.e., WVR Test A); or
2. an expected market capitalisation of at least HK$10 billion at the time of listing and revenue of at least HK$1 billion for the most recent audited financial year (i.e., WVR Test B).

Lower the financial eligibility thresholds for a secondary listing of an overseas issuer with a WVR structure to align them with those proposed for WVR issuers with a primary listing, such that:

• WVR Test A would be modified to an expected market capitalisation of at least HK$20 billion at the time of listing; and
• WVR Test B would be modified to an expected market capitalisation of at least HK$6 billion and revenue of at least HK$600 million for the most recent audited financial year.

An overseas issuer seeking a secondary listing without a WVR structure must satisfy either Criteria A or Criteria B:

Criteria A

(1) A track record of good regulatory compliance of at least five full financial years on a Qualifying Exchange or (only for issuers without a centre of gravity in Greater China) any Recognised Stock Exchange; and

(2) a market capitalisation of at least HK$3 billion at the time of listing.

Criteria B

(3) A track record of good regulatory compliance of at least two full financial years on a Qualifying Exchange; and

(4) a market capitalisation of at least HK$10 billion at the time of listing.

Lower the market capitalisation threshold under Criteria B from HK$10 billion to HK$6 billion

The market capitalisation threshold under Criteria A would be retained

Initial Listing Requirements and Listing Arrangements

Ownership continuity and control

An applicant must have been operating as an integrated unit under the same shareholder that is able to exert substantial influence on the management in the relevant period

Codify existing guidance into a Listing Rule requirement stating that an applicant will be considered to have satisfied the ownership continuity requirement if it can demonstrate, to the Stock Exchange’s satisfaction, that there was no material change in influence on management during the relevant period despite a change in controlling shareholder over that period to address any packaging concerns.

Updated Chapter 1.1C of the Guide for New Listing Applicants to emphasise:

1. the applicant’s responsibility to demonstrate no material change in management influence during the relevant period; and
2. that the Stock Exchange reserves the power to reject a listing application if it believes the applicant has “packaged” multiple businesses into one business for the purpose of artificially meeting the eligibility requirements for listing. In such circumstances, the applicant has to demonstrate, to the satisfaction of the Stock Exchange, that there is no packaging concern.

Financial reporting standards

An applicant listed / to be listed in the US and seeking a dual primary or secondary listing in Hong Kong may apply for a waiver to adopt Generally Accepted Accounting Principles in the United States of America (US GAAP)

Expand the permitted use of US GAAP to: (i) subsidiary companies of a US-listed parent seeking to list on the Stock Exchange; and (ii) companies with substantial business operation(s) in the US, subject to the following conditions:

1. The applicant’s listing document includes: (i) a description of the material differences between the US GAAP and the Hong Kong Financial Reporting Standards (HKFRS) or International Financial Reporting Standards (IFRS); and (ii) a reconciliation statement; and
2. a reconciliation statement shall be included in its annual and interim reports after listing.

Requirement that US GAAP reporters must revert to preparing financial statements using HKFRS or IFRS if it delists from the US

Remove this requirement

Requirement that where relevant financial statements are not audited or reviewed by auditors, the reconciliation statement of US GAAP reporters must be reviewed by auditors

Remove this requirement

Commercialised biotech and specialist technology applicants

If Biotech Companies and Specialist Technology Companies (as defined in the Listing Rules) are able to satisfy any financial eligibility test under Chapter 8 of the Listing Rules, they must list under the ordinary listing route (Chapter 8) rather than under the specialist routes for Biotech Companies and Specialist Technology Companies under Chapter 18A and Chapter 18C, respectively

Allow Biotech Companies and Specialist Technology Companies to seek a listing under the applicable specialist chapters even if they satisfy one or more of the Rule 8.05 eligibility tests (Eligible Specialist Companies)

For an Eligible Specialist Company seeking a listing as a commercialised Biotech Company under Chapter 18A:

• Must have a track record period of three years
• The following requirements for a Biotech Company would not apply:

• Have its primary reason for listing to raise funds for R&D to bring core product to commercialisation
• Have at least one sophisticated investor with meaningful third-party investment six months before date of listing
• Prominently disclose warning that each core product may not ultimately be successfully developed and marketed
• 12-month remedial period for a Biotech Company that fails to maintain sufficient operations
• Continuing obligations, including avoidance of any transaction/ arrangement that would result in a change of its principal business activities, and addition of a stock marker to the stock name

For an Eligible Specialist Company seeking a listing as a commercialised Specialist Technology Company under Chapter 18C:

• Requirements that are applicable to a Commercial Company (one that has met the revenue requirement set out in Rule 18C.03(4)) would apply, with the exception of the following:

• meaningful investments from sophisticated independent investors; and
• warning statement on the front cover and inside front cover of listing document.

Double-dipping:

• The bespoke conditions on placings to existing shareholders or their close associates in an IPO that apply to Biotech Companies and Specialist Technology Companies would not apply to an Eligible Specialist Company
• An Eligible Specialist Company can rely on the size-based exemption from “double dipping” that applies to ordinary Main Board listing applicants (i.e., the offer has a total value of at least HK$1 billion; securities allocated to existing shareholders and close associates under the exemption do not exceed 30%; and each director, chief executive, and controlling shareholder (in the case of PRC issuer, supervisors also) confirm no securities have been allocated to them/their close associates under such exemption)

Confidential filing

Confidential filing is only available to eligible secondary listing applicants, Biotech Companies, and Specialist Technology Companies, or subject to case-by-case waivers for other applicants

Expand the confidential filing option to all new applicants (i.e., the non-public filing option), so a new applicant may choose not to publish an application proof (AP) at the time it submits its listing application, in which case it only needs to publish an Overall Coordinator (OC) announcement on the same date as it publishes its post hearing information pack (PHIP). An applicant that has opted for non-public filing at the time of its listing application may subsequently elect to publish its draft listing document before the publication of the PHIP, subject to the following conditions:

• Latest version required: The published draft must be the most up-to-date version filed with the Stock Exchange, reflecting all Stock Exchange and SFC comments received to date (the Updated Application Proof)
• Same publication requirements apply: The Updated Application Proof must comply with all the same rules that normally govern Application Proofs published on the Stock Exchange’s website, including content redaction, mandatory disclaimers/warning statements, and submission of the required legal confirmation
• Additional disclaimers required: The Updated Application Proof must carry extra disclaimers clarifying that: (i) it is only an interim draft still subject to Stock Exchange and SFC review; (ii) its publication is solely the result of election by the applicant at its discretion and is not an indication of vetting progress nor an indication that the whole, or any part of, the Updated Application Proof and the related listing application has been approved by the Stock Exchange or the SFC

A new applicant may still opt for publication of its AP (i.e., public filing option) upon the submission of its listing application. In such circumstances, the OC announcement must be published on the same date as its listing application, the existing requirements on the content and the prescribed timing for publishing, and an AP would continue to apply.

Return mechanism if application materials are not substantially complete

An application that is not substantially complete may be returned, upon which the sponsor’s identity will be displayed on the Stock Exchange’s website

In addition to the identities of the sponsors, the names and roles of other professional parties involved in the proposed listing will also be displayed on the designated webpage of the Stock Exchange, including:

• Legal adviser(s) to the company
• Legal adviser(s) to the sponsor(s)
• Reporting accountant(s) and independent auditor(s)
• Industry consultant
• Any other experts who have consented to the inclusion in the AP of any copy or extract of their report, opinion, statement, or valuation that is contained, or referred to, in the AP
• Promoter(s) (in the case of a SPAC, or a successor company in the context of a de-SPAC transaction)

The reasons for return will also be displayed.

The applicant whose application has been returned can only submit a new listing application no less than eight weeks after the date of the Listing Division’s decision to return the listing application

Amend the starting point of the eight-week moratorium from the date of the Listing Division’s decision to either: (a) the date on which the time period for invoking any applicable review procedures has lapsed; or (b) where the applicant invokes such procedures, the date on which all applicable review procedures in respect of that decision have been completed

General effect of a change of listing status

Resulting listing status

Dual-primary listing

Primary listing

Change of listing status timing

Upon expiry of the 12-month Migration Grace Period, which runs from the date of the Stock Exchange’s migration exchange notice

Upon the effective date specified of the Primary Conversion

Upon the effective date of the overseas de-listing

Effect on exemptions / waivers tied to secondary listing status

Disapply upon expiry of the Migration Grace Period

Disapply upon the effective date of the Primary Conversion

Disapply upon the effective date of the overseas de-listing

Stock marker

The “S” marker is disapplied only once the issuer is in full compliance with all applicable Listing Rules — it may continue beyond expiry of the Migration Grace Period if the issuer is not yet compliant

“S” is disapplied from the effective date of Primary Conversion

A “TP” (transitional) marker may instead be applied where the Stock Exchange grants an exceptional grace period

“S” is disapplied from the effective date of overseas de-listing

A “TP” marker may be applied where an exceptional grace period is granted

Continued use of an alternative overseas financial reporting standard

Issuer listed in the US adopting US GAAP

Permitted to continue to adopt US GAAP upon change of listing status

Issuer incorporated in EU adopting EU-IFRS

Permitted to continue to adopt EU-IFRS upon change of listing status

Issuers adopting other alternative overseas standards

Permitted to continue if the issuer maintains a primary listing in the jurisdiction of that standard

Permitted to continue if the issuer maintains a primary listing in the jurisdiction of that standard

Issuer must revert to HKFRS or IFRS for financial statements falling due after the first anniversary of the de-listing

Notifiable/Connected Transactions and WVR/VIE Structures

Three-year exemption for continuing connected and/or notifiable transactions entered into before a change of listing status takes effect and will continue thereafter

Available for continuing transactions entered into before the start of the Migration Grace Period and will continue after change of listing status

Not available — full compliance with Chapters 14/14A is required for continuing transactions conducted after the Primary Conversion

Available for continuing transactions entered into before submission of the overseas de-listing issuer notification and will continue after change of listing status

Not available — full compliance with Chapters 14/14A is required for continuing transactions conducted after the overseas de-listing

Retention of non-compliant WVR/VIE structures

Grandfathered Greater China Issuers and Non-Greater China Issuers may retain non-compliant WVR and/or VIE structures following change of listing status