Hong Kong, Bermuda, the Cayman Islands, Ireland and the United Kingdom have different rules and requirements regarding the admission to listing of closed-ended funds/investment companies and mutual funds on their respective stock exchanges. The purpose of this publication is to summarise the key rules and requirements specified by the listing authority of each of the above jurisdictions in relation to:
- listing qualifications;
- listing procedures;
- listing particulars; and
- continuing obligations of a listed issuer.
This publication is intended to provide only general information for clients and contacts of Charltons and does not purport to be comprehensive or to constitute legal advice. It has not been prepared in contemplation of any particular facts and readers are cautioned not to rely on its contents without first taking specialist legal advice.
SECTION A LISTING QUALIFICATIONS
1. Hong Kong
Both newly formed and existing companies/funds may apply for listing on the Hong Kong Stock Exchange (“the SEHK”). In order to become listed on the SEHK, a closed-ended fund must demonstrate that it satisfies the following general conditions for listing (which are applicable to all applicant companies):-
- it is duly incorporated or otherwise established under the laws of the place where it is incorporated1;
- if it is a Hong Kong company it is not a private company2;
- both the issuer and its business are suitable for listing3;
- its share capital does not include B Shares4;
- it has appointed competent officers and has a sufficient management presence in Hong Kong5;
- there must be an open market for and an adequate spread of holders of the securities to be listed6;
- it is or employs an approved share registrar7;
- it is sponsored by a member of the SEHK, issuing house, merchant bank or other similar person if it is a new applicant8.
The following additional conditions will apply in respect of an application for listing by investment companies:
- the SEHK must be satisfied as to the character, experience, integrity, fitness and competence of the directors of the investment company, its management company and/or its investment adviser, and must be satisfied that the executive management committee have had satisfactory experience in the professional management of investments on behalf of third party investors9;
- the investment company should generally have a custodian or trustee which must be acceptable to the SEHK10;
- the constitutive documents or trust deed of the investment company should11
- prohibit the investment company from taking management control of underlying investments or owning or controlling more than 30% of the voting rights in any one company or body;
- require a reasonable spread of investments12;
- require shareholders’ meetings to be convened and conducted in a manner which is acceptable to the SEHK ;
- prohibit any custodian, management company, and any of their connected persons13, and every director of any investment company and management company from voting their own shares at, or being part of a quorum for, any meeting to the extent that they have or any of their associates14 has, a material interest in the business to be conducted;
- require its auditors to be independent of the issuer, any management company and any custodian;
- in the case of a newly formed issuer, at the conclusion of the initial offering of shares or units or, in the case of an existing investment vehicle, at the time of listing, no person should control 30 % or more of the votes exercisable at any general meeting of the issuer15;
- in the case of a newly formed issuer, the investment objectives, policies and restrictions set out in the listing document must not be changed for a minimum period of 3 years without shareholders’ consent16.
Finally, the following corporate governance rule amendments to the SEHK Listing Rules were introduced on 31 March 2004, and apply to all listed companies:
- every board of directors of a listed issuer must include at least three independent non-executive directors (“INEDs”)17;
- at least one of the INEDs must have appropriate professional qualifications or accounting or related financial management expertise18;
- every listed issuer must establish an audit committee comprising non-executive directors only19;
- every listed issuer must employ a full-time accountant20.
1 Rule 8.02 of the SEHK Listing Rules.
2 Rule 8.03 of the SEHK Listing Rules.
3 Rule 8.04 of the SEHK Listing Rules.
4 Rule 8.11 of the SEHK Listing Rules. “B Shares” are shares of which the proposed voting power does not bear a reasonable relationship to the equity interest of such shares when fully paid. The SEHK may still accept the listing application in limited circumstances.
5 Rules 8.12 and 8.17 of the SEHK Listing Rules. This will normally mean that the applicant’s secretary and at least two of its executive directors are ordinarily resident in Hong Kong. Further, the board of directors must include at least three independent non-executive directors, at least one of whom must have appropriate professional qualifications or related management expertise. All proposed directors must be competent and fulfil their fiduciary duties and duties of due skill, care and diligence. They must also accept full responsibility for the issuer’s compliance with the SEHK Listing Rules (Rules 8.15, 3.08, 3.09, 3.10, 3.12 of the SEHK Listing Rules).
6 Rule 8.08(2) and 8.08(3) of the SEHK Listing Rules. The spread will depend on the size and nature of the issue, but in all cases there must be a minimum of 300 shareholders. The Stock Exchange may be prepared to waive the guideline regarding the minimum number of shareholders in appropriate circumstances (for example, where the securities of the investment company are not marketed to the public in Hong Kong (see Rule 21.04). .
7 Rule 8.16 of the SEHK Listing Rules.
8 Rule 3.01 of the SEHK Listing Rules.
9 Rule 21.04(1) of the SEHK Listing Rules.
10 Rule 21.04(2) of the SEHK Listing Rules.
11 Rule 21.04(3) of the SEHK Listing Rules.
12 Generally this means that the value of its holding of investments issued by any one company or body shall not exceed 20% of the issuer’s net asset value at the time when such investment is made.
13 “Connected person” is defined in Rule 1.01 of the SEHK Listing Rules, and includes directors, chief executives or substantial shareholders of the relevant company or any of its subsidiaries or an associate of any of them. A “substantial shareholder” refers to a person who is entitled to exercise or control the exercise of, 10% or more of the voting power at any general meeting of the company.
14 “Associate” is defined in Rule 1.01 of the SEHK Listing Rules and includes, inter alia, (i) in the case of an individual: his spouse and children (“family interests”), the trustees of any trust of which he or any of his family interests is a beneficiary, and any company in which he, any of his family interests and/or trustees together controls 30% or more of the voting power at general meeting, and (ii) in the case of a company: any subsidiaries or holding company or fellow subsidiary of such holding company, or company in which it and/or such other company or companies together controls 30% or more of the voting power at general meeting.
15 Rule 21.04(4) of the SEHK Listing Rules. The interests of all the associates of a shareholder and any persons acting in concert with a shareholder will be aggregated.
16 Rule 21.04(5) of the SEHK Listing Rules.
17 Rule 3.10(1) of the SEHK Listing Rules.
18 Rule 3.10(2) of the SEHK Listing Rules. With regard to “appropriate accounting or related financial management expertise”, the SEHK would expect the person to have, through experience as a public accountant or auditor or as a chief financial officer, controller or principal accounting officer of a public company or through performance of similar functions, experience with internal controls and in preparing and auditing comparable financial statements or experience reviewing or analysing audited financial statements of public companies.
19 Rule 3.21 of the SEHK Listing Rules. The audit committee must comprise a minimum of three members, at least one of whom is an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise.
20 Rule 3.24 of the SEHK Listing Rules. The SEHK has indicated that the employment of a full-time accountant by an investment manager would not satisfy Rule 3.24.