Capital Markets- Hong Kong

On March 7 2007 the Hong Kong Stock Exchange and the Securities and Futures Commission (SFC) published a policy statement on the listing of overseas companies. Its purpose is to facilitate the listing of such companies by clarifying the requirements of the listing rules and providing guidance for potential issuers and their advisers on shareholder protection.

Assessing Applicant Companies

At present, applicants incorporated outside Hong Kong and other recognized jurisdictions(1) which seek a primary listing on the Main Board or the Growth Enterprise Market (GEM) are assessed on a case-by-case basis and must demonstrate that they are subject to shareholder protection standards which are at least equivalent to those required under Hong Kong law. The schedule of key shareholder protection measures in the policy statement will help applicants to provide submissions on key requirements and demonstrate that they are subject to appropriate measures.

Chapter 19 of the Main Board Listing Rules and Chapter 24 of the GEM Listing Rules provide a general framework for overseas companies. In particular, Main Board Listing Rule 19.05(1)(b), GEM Listing Rule 24.05(1)(b) and their accompanying notes require an overseas company to benchmark the shareholder protection standards of its home jurisdiction to Hong Kong standards; if the standards of the applicant's home jurisdiction are not acceptable, the applicant must amend its constitutional documents as appropriate.

The criteria which the regulator may consider when assessing a company's suitability are not limited by the rules and may be expanded or modified in a particular case. Such modification may be appropriate if an applicant can demonstrate that compliance with Hong Kong rules is contrary to the law of the jurisdiction in which it is incorporated. However, if a company or its advisers are aware that certain provisions of this law may have a negative material impact on the value of the shares to be offered or the rights or privileges attached to them, the onus is on the company or advisers to inform the stock exchange.

Overseas Regulatory Supervision

The Hong Kong regulators must have reasonable access to information on the conduct of a listed overseas company in its home or governing jurisdiction in order to take prompt and effective regulatory action if it fails to comply with local requirements. When assessing applications from overseas companies, the stock exchange considers whether adequate cooperation and information-gathering arrangements exist between Hong Kong's statutory securities regulator and the corresponding regulator in the applicant's jurisdiction of incorporation. Although this factor is not necessarily decisive, the SFC and the stock exchange have stated that they will look more favourably on an application from a company from a jurisdiction whose securities regulator is a full signatory to the International Organization of Securities Commissions Multilateral Memorandum of Understanding or has entered into a bilateral agreement for mutual assistance and exchange of information with the SFC.

Such cooperation with overseas regulators is less meaningful if the company in question does not have its main business operations, assets or management presence in the regulator's jurisdiction; an applicant which can demonstrate only a tenuous link between its place of incorporation and its operations is likely to be subject to greater scrutiny. If the jurisdiction of incorporation is entirely unrelated to an applicant's principal business operations (ie, the location of its principal trading activities, assets and executive offices), the applicant may be considered unsuitable for listing under Main Board Listing Rule 8.04 or GEM Listing Rule 11.06.

Comment

The stock exchange has stated that the policy statement is intended to allow overseas companies seeking to list in Hong Kong to "focus on fewer but more relevant issues, thereby streamlining the process for overseas issuers". Although a large number of applications are not expected in the short term, the option of trading in Hong Kong is expected to become increasingly attractive for companies with business interests in the jurisdiction.