In 2014, the Stock Exchange of Hong Kong (the “Hong Kong Stock Exchange”) raised IPO funds of US$29.3 billion and ranked in the top 5 among world stock exchanges for IPO funds raised for the 13th consecutive year. 1,643 companies were listed on the Hong Kong Stock Exchange as at the end of December 2013 and there were 110 new listings on the Hong Kong Stock Exchange in 2013.
The Hong Kong Stock Exchange operates two markets, the Main Board and the GEM. The HKEx’s Main Board caters for companies with a profitable operating track record or that are able to meet alternative financial standards. It is designed to give these companies an opportunity to raise further funds from the market in order to finance future growth. GEM, on the other hand, caters for smaller growth companies and has lower admission criteria.
The Listing Rules contain specific requirements for the listing of mining and natural resource companies, although early stage exploration companies are not permitted to list. The Hong Kong Stock Exchange has published proposals to allow the listing on the Main Board of tech and innovative companies with weighted voting rights structures and pre-revenue biotech companies subject to certain conditions and safeguards. The proposals are set out in the Stock Exchange's Consultation Paper on a Listing Regime for Companies from Emerging and Innovative Sectors Consultation Paper on a Listing Regime for Companies from Emerging and Innovative Sectors Consultation Paper on a Listing Regime for Companies from Emerging and Innovative Sectors which was published on 23 February 2018. The Consultation Paper is also proposing to allow the secondary listing of Chinese companies which are primary listed on the New York Stock Exchange, Nasdaq or the premium segment of the London Stock Exchange’s Main Market.
The following contains a summary of the principal requirements for listing on the Main Board under the existing Hong Kong Listing Rules.
Methods of Listing by New Applicants
Going public means the widening of the shareholder base and this may be achieved by any of the following methods:
“Offer for Subscription” or “New Issue”
An offer to the public by or on behalf of an issuer of its own securities for subscription. The offers can be made at a fixed price or by tender, where the minimum price of the securities is fixed and offers are invited at a higher price, with the securities generally being issued to the highest bidders. An offer for subscription must be fully underwritten and a listing document is required which must comply with the requirements of the Hong Kong Listing Rules.
“Offer for Sale”
An offer to the public by, or on behalf of, the holders or allottees of securities already issued or agreed to be subscribed. The offer is generally made by a sponsor(s) on behalf of the selling shareholder. Similar to an offer for subscription, an offer for sale can be made at a fixed price or by tender and the securities are generally issued to the highest bidders. There is no specific requirement for an offer for sale to be underwritten, although they often are to ensure compliance with the requirement for a minimum percentage of the securities to be in public hands.
Obtaining subscriptions for, or selling securities by, an issuer or intermediary primarily from or to a selected group of investors. The Hong Kong Stock Exchange may not allow a listing by way of placing if there is likely to be significant public demand for the securities. Where an applicant has a very large market capitalisation, both a public offer and private placement can be adopted. Placing guidelines set out in Appendix 6 of the Hong Kong Listing Rules contain specific requirements for new applicants:
- The minimum expected initial market capitalisation of the securities to be placed must be at least HK$25 million or such other amount as may be fixed by the Hong Kong Stock Exchange from time to time.
- At least 25% of the amount placed must be made available to investors other than clients of the lead broker who has received special notification with respect to the placing.
- There must be an adequate spread of holders. The number depends on the size of the placing, but as a general guideline there should not be less than three holders for each HK$1 million of the placing, with a minimum of 100 holders.
- The Hong Kong Stock Exchange’s prior written consent is required for allocations to certain persons, including ‘connected clients’ (defined in the Hong Kong Listing Rules) of the lead broker and directors or existing shareholders of the applicant or their associates.
- Not more than 25% of the placing may be allocated to ‘discretionary managed portfolios’ (defined in the Hong Kong Listing Rules).
- Not more than 10% of the placing may be offered to employees or past employees of the applicant.
- Neither the lead broker nor any distributor may retain any material amount of the securities being placed for their own account.
The offer for sale of shares that are already held by a wide spectrum of investors, e.g. shares that are listed on another stock market. Listing through introduction will only be permitted in exceptional circumstances and there must not have been a marketing of the securities in Hong Kong within 6 months prior to the proposed listing. A pre-existing intention to dispose of the securities, a likelihood of significant public demand for the securities, or an intended change of the issuer’s circumstances, would prohibit an introduction.