Hong Kong

The Hong Kong Stock Exchange (HKEX) is to expand its listing regime in a bid to attract more companies from growing business sectors and to boost its competitiveness compared with other major financial centres.

This follows a consultation which began in June which identified certain gaps within Hong Kong’s listing regime affecting its overall competitiveness versus other major global listing venues, particularly in respect of attracting companies from emerging and innovative sectors.

Hong Kong Stock Exchange listing regime
The Hong Kong Stock Exchange is to expand its listing regime

HKEX said it received 360 responses to the consultation with 91% of respondents supporting measures that would help diversify the Hong Kong market and, in particular, help attract more issuers from emerging and innovative sectors. It has now decided to expand the existing listing regime by introducing two new chapters to the main board listing rules to allow the listing of biotech issuers which are pre-profit / pre-revenue; and issuers from emerging and innovative sectors that have structures with weighted voting rights (WVR), which would be subject to additional disclosure and safeguards.

Companies with WVR structures would be required to have a minimum expected market capitalisation of $10 billion and, if below $40 billion of market capitalisation, would need to meet a higher revenue test of $1 billion in the full financial year before listing, HKEX said.  Pre-revenue companies listing under the new biotech chapter would be required to have a minimum expected market capitalisation of $1.5 billion.

HKEX said that the biotech sector has been chosen as the initial focus in widening market access for early-stage companies as their activities tend to be strictly regulated under a regime that sets external milestones on development progress.  Additionally, biotech firms make up a majority of companies in the pre-revenue stage of development seeking a listing, the exchange said.  Such issuers would also be subject to the same regulatory standards as other applicants to the main board, except for the financial track record requirements.

The existing Listing Rules in relation to overseas companies will also be modified to create a new concessionary secondary listing route to attract issuers from emerging and innovative sectors that are primary listed on the New York Stock Exchange, Nasdaq or the premium listing segment of the London Stock Exchange’s main market. There will now be discussions with stakeholders before final proposals on the listing rule changes are formally consulted on next year.

HKEX Chief Executive Charles Li said: “The market has made it clear they want the Exchange to take action to broaden Hong Kong’s capital markets access and enhance its competitiveness. We are very grateful for the feedback we received from a wide range of market participants which informed this clear new direction we have proposed for Hong Kong’s listing regime. We are encouraged by the momentum Hong Kong has built in establishing itself as the region’s hub for innovative companies.  We look forward to market participants’ continued support in our second round consultation on rule amendment details.  By the second half of next year, we hope that we will see a significant number of innovative companies beginning to choose Hong Kong, making the Hong Kong market a relevant and even more competitive place.”

HKEX is also making changes to the rules of its growth and emerging markets Listing Rules amendments will be introduced to reflect the new role of GEM as a market for small and mid-sized companies and to ensure that there is a clear distinction between issuers listed on GEM and the Main Board.

Hong Kong corporate governance improving but could still do better

The latest review of the state of corporate governance in Hong Kong-listed companies by Grant Thornton has found an improving picture with 46% of the Hang Seng Composite Index ( HSCI ) companies claiming full compliance with the Hong Kong Stock Exchanges’s corporate governance code in 2016 compared with 41% in 2015. However, the firm pointed out that there was still room for further improvements.

In its 2017 corporate governance review Grant Thornton Hong Kong compared the 2016 annual reports of 472 HSCI companies and found 87% of HSCI companies integrated the disclosure of risk management and internal control in their corporate governance reports. However, the review showed that 56% of the HSCI companies did not disclose the process used to identify, evaluate and manage significant risks and only 30% of HSCI companies disclosed the name of the approach or framework adopted for their risk management system.

The review also found that 97% of HSCI companies discussed or mentioned environmental, social and governance (ESG) issues either in their annual reports or in separate ESG reports. This represented a big jump from the 80% report rate in Grant Thornton’s 2016 review analysing companies’ 2015 annual reports.

The Hong Kong Stock Exchange is currently consulting on changes to its corporate governance code.

Last Updated: 21 December 2017

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