On the Horizon
Changes Ahead for Listing Regime
Changes Ahead for Listing Regime

The Chamber has responded to the “Consultation Paper on a Listing Regime for Companies from Emerging and Innovative Sectors” issued by HKEX. 

Our comments on this Consultation Paper (CP) focus on the proposed relaxation of the listing rules to permit the admission of companies with weighted voting rights (WVR). The new listing conditions are intended to attract quality companies from emerging and innovative sectors. Our comments are as follows:

Investor protection
The Securities and Futures Ordinance clearly sets out HKEX’s statutory duties when it comes to introducing changes of the kind proposed in the CP. It states that HKEX is required to: “(a) act in the interest of the public, having particular regard to the interest of the investing public; and (b) ensure that the interest of the public prevails where it conflicts with the interest of the recognized exchange company.” 

We believe that HKEX has, to a large degree, adhered to these principles in its proposals to introduce New Rules to accommodate the listing of companies with WVR structures.

 In particular, we welcome the HKEX’s commitment to the credo of “one share, one vote,” which “continues to be the optimum method of empowering shareholders and aligning their interests in a company.” 

In this regard, we support the proposal for the eventual phasing out of WVRs, which would only exist as long as the original beneficiaries continue to be involved in the operations of the issuer. HKEX may also wish to consider including an overall maximum cap on the duration of WVRs at 10 years, with the possibility (upon approval by disinterested shareholders) of being extended for a further maximum period of 10 years.

Listing conditions
The proposed safeguards in the CP include a proposal to limit the scope of companies suitable for listing to those that are, among other things, “innovative.” The criteria on the definition of innovative companies appear relatively elastic, and many companies could argue that they satisfy them. We are therefore not sure whether this would significantly limit the number of successful WVR applicants. 

Also, the criteria appear to be, to a large extent, discretionary. The HKEX has acknowledged that guidance and clarification may be necessary given the new listing regime and has suggested that prospective issuers consult with it before making a listing application. To address concerns over arbitrariness in the interpretation of “innovative,” we suggest that HKEX involve the Listing Committee in the vetting process.

Under the proposed New Rules, WVR companies looking to list on the Main Board would be required to have an expected market capitalisation of at least $10 billion and at least $1 billion of revenue in its most recently audited financial year if it has an expected market capitalisation of $40 billion. 

We wonder whether this threshold is too high, which may deter New Economy companies from listing. We appreciate that the requirement is “to limit applicants to established and high profile companies” but also note that this is much more stringent than the existing financial eligibility tests for prospective issuers. 

International companies, start-ups in particular, with better access to private funding from investors and venture capital firms in other sophisticated markets may be less affected by the proposed threshold. But it would put their indigenous counterparts at a distinct disadvantage regardless of their intrinsic potential and opportunity for growth. 

In this regard, we suggest that consideration be given to a lower threshold of, say, $500 million, in minimum revenue for the most recent financial year. This would be consistent with the current tests for applicant issuers.

In general, we welcome the proposal to broaden capital market access in Hong Kong and strengthen Hong Kong’s listing regime by allowing the listing of companies with WVR. 

In addition to ensuring that the new listing conditions serve their intended purpose of attracting quality issuers from the emerging and innovative sectors, fairness and investor protection are also of paramount importance. There should therefore be efforts to promote understanding and awareness among investors on the risks associated with investing in such companies. 

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