HK to Allow Secondary Listings from Some Corporate WVR Companies

Subject to certain requirements, Greater China issuers primary listed on the Nasdaq, NYSE or the LSE’s premium listing segment will be allowed to secondary list in Hong Kong.

The SEHK (Stock Exchange of Hong Kong), a wholly-owned subsidiary of HKEX (Hong Kong Exchanges and Clearing), has published conclusions to its consultation on corporate WVR (weighted voting rights) beneficiaries.

The consultation was launched in January, building on April 2018 reforms to Hong Kong’s listing regime which allowed companies with WVR shares held by individuals (e.g. company founders) to primary list in the city, i.e. the Chapter 8A regime. The listings of Alibaba, JD.com, NetEase, Xiaomi and Meituan in Hong Kong were made possible by the 2018 reforms.

Among the 65 responses received in the consultation, a majority of respondents agreed in principle that corporate WVR beneficiaries should be permitted, SEHK said. However, there were “very diverse views and expectations” as to how the proposed regime would operate in practice.

In light of the feedback, the SEHK has decided to give more time for the market to develop a better understanding of Hong Kong’s regulatory approach towards regulating listed companies with WVR structures and their controllers, and for regulators to monitor that the existing Chapter 8A regime operates as intended, which will “help to inform any future amendments”.

In the meantime, the SEHK will allow Greater China issuers that are controlled by corporate WVR beneficiaries (as at 30 October 2020) and primary listed on a Qualifying Exchange (NYSE, Nasdaq, and the LSE’s Premium Listing segment) to secondary list in Hong Kong.

This will be done via the existing grandfathering arrangement that allows Greater China Issuers primary listed on a Qualifying Exchange to secondary list in Hong Kong, without having to amend their existing WVR structures “even if they have WVR structures that do not meet Hong Kong’s own requirements”.

To secondary list in Hong Kong, these Greater China issuers must have been listed on a Qualifying Exchange on or before 15 December 2017, and demonstrate that they have been able to safeguard the interests of public investors through good regulatory compliance with their existing regulatory regimes.

This includes a market cap requirement of at least USD 40 billion, or at least USD 10 billion with at least USD 1 billion of revenue for its most recent audited financial year. This compares to a market cap of only USD 500 million for an issuer without a WVR structure listing under the profit test, the SEHK’s most common listing route.

A Qualifying Corporate WVR Issuer seeking to secondary list in Hong Kong must also be an “innovative company” as part of demonstrating their suitability for listing, and be able to demonstrate that the domestic laws, rules and regulations to which they are subject and their constitutional documents provide certain shareholder protection standards.

These include should provide certainty that the issuer will hold an AGM each year and provide members who hold 10 percent or more of the voting rights (on a one vote per share basis) with the right to convene an extraordinary general meeting.

Like other secondary issuers, Qualifying Corporate WVR Issuers would be exempt from certain Listing Rules; however if trading in their shares migrates to the SEHK on a permanent basis, these exemptions would fall away.

Currently, there are “about 10” Chinese technology companies that are already listed on US stock markets which are owned by corporate shareholders with a WVR structure. Among them are Tencent Music Entertainment Group and Baidu’s video streaming platform iQiyi, both of which would qualify for a secondary listing in Hong Kong under the new rules, the SCMP reports.

The SEHK also plans to consult the market in due course on proposals to normalise the eligibility requirements that apply to Greater China Issuers that do not have WVR structures and seek to secondary list in Hong Kong.

“We hope to publish a consultation paper soon on a review of our dual-primary and secondary listing regimes as a whole,” the SEHK says.

The consultation conclusions are published here, and the respondents’ submissions here.

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