I. Brief Introduction of the GEM
The Growth Enterprise Market or GEM is the new stock market launched by the Stock Exchange of Hong Kong Limited (“the Exchange”) in the fourth quarter of 1999. The main mission of GEM is to provide a venue for growth enterprises to raise capital for proper use towards the development and expansion of their business. It is the long term objective of the Exchange to develop GEM into a successful stock market in its own right which can satisfy the quality and level of transparency and regulation sought by investors wishing to participate in the growth in China and the region.
- Separate Identity
- A Separate Market
GEM is an alternative market to the existing stock market (herein referred to as the “Existing Market”) operated by the Exchange. Whilst GEM draws on some of the Exchange’s resources to provide for its back office support, it has its own dedicated team of front line management and staff to operate independently from the Existing Market.
- Transfer of Listing
GEM is a completely separate market and is neither junior nor inferior to the Existing Market. In particular, it is not a nature ground to prepare companies for the wishing to transfer its listing from GEM to the Existing Market or visa versa which will need to satisfy in full all the entry and ongoing requirements of the respective markets.
- Separate Listing Rules
GEM has its own listing rules and requirements, namely, The Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“GEM Listing Rules”), which in certain respects are identical to or mirror those of the Existing Market but which in many other respects are different from those of the Existing Market. The GEM Listing Rules stands alone and it is unnecessary to cross-reference to the listing rules of the Existing Market.
- A Separate Market
- Market Characteristics
- Targeting Growth Companies
GEM targets growth companies from all industries of all sizes. To also accommodate those smaller growth companies without a performance track record, the GEM entry requirements are lower than those of the Existing Market. Initially, companies listed on GEM are required to be incorporated in any one of the following jurisdictions: Hong Kong, the People’s Republic of China, Bermuda and the Cayman Islands.
- Buyer’s Beware Philosophy
By their nature, the future performance of growth companies without a proven track record is likely to be less predictable. The risks associated with investment in these growth companies are therefore expected to be higher in view of the greater uncertainty. GEM adopts a buyer’s beware philosophy and investors are required to make their own assessment of the commercial viability of companies listed or about to be listed on GEM. The initial role of the Exchange in screening the suitability for listing of applicants is very limited and specifically excludes any assessment of their commercial viability.
- A Market for Professional and Informed Investors
The rules, requirements and facilities of GEM are designed to satisfy the needs and standards desired by professional and informed investors in the context of growth companies. The rules and requirements emphasise on detailed, frequent and timely company disclosures whilst the electronic trading and communication facilities enable participants to gain convenient and timely market access for order processing and information retrieval.
- Differentiation From the Existing Market
The Existing Market and GEM cater for the different investment appetite of investors and offer listing applicants a choice to go public. Investors who are averse to higher risk may choose to invest in the more established companies listed on the Existing Market with the prospect of earning of a more steady return in terms of dividend yield and capital appreciation. On the other hand, investors who have an appetite for risk may choose to invest in the GEM companies with the prospect of seeking greater capital appreciation that are commensurate with the greater risks.
- Targeting Growth Companies
- Advantages of Listing on GEM
A PRC Company may effectively be listed on GEM either by direct issue of H Shares in Hong Kong or by incorporating an overseas company and have the overseas company’s shares listed. Obtaining a list on the GEM will bring the following benefits to the issuer:
- access to international funds at the international financial centre where a number of the world’s most successful fund managers being involved in the capital market actively
- exposure to and experience from the well established international standard and practice in respect of corporate governance, a director’s fiduciary duty and protection of minority shareholders
- to enhance the company’s profile and reputation in the international business world and securing the interest and confidence of international investors and business partners
- Comparison of GEM with the Existing Market
- A table of comparison of the salient features of the GEM Listing Rules and those of the existing market (so-called “Main Board”) is enclosed herewith for reference as Appendix A.
- PRC Application Approval Procedures for Listing on GEM
- A summary of application and approval procedures applicable to a PRC company seeking Listing on the GEM is enclosed herewith as Appendix B for reference. The summary is prepared based on the Guidelines To Approval and Supervision of Domestic Enterprises Seeking Listing On the Growth Enterprise Market of Hong Kong promulgated by the China Securities Regulatory Commission on 12th October 1999.