The Stock Exchange of Hong Kong Limited (the “Exchange”), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (“HKEX”) issued consultation paper for feedback on 16 June 2017. Subsequent to the feedback from professional bodies and listed companies, the Exchange on 15 December 2017 published its consultation conclusions on the Review of the Growth Enterprise Market (“GEM”) and instituted proposed changes to the GEM and Main Board Listing Rules (“Consultation Paper”). The revised GEM Listing Rules and Main Board Listing Rules will be implemented on 15 February 2018.
The Exchange is concerned on the high concentration of shareholders shareholding, the post-initial public offering (“IPO”) price volatility, likely creation of “listed shell” companies in Hong Kong, which led to new listing reforms being introduced by the Exchange.
Key changes to the Main Board and GEM Listing Rules are as follows.
|At least HK$50 million in the last three (3) financial years with HK$20 million recorded in the most recent year and aggregate profit of at least HK$30 million recorded in the two (2) years before that||A positive cashflow generated from operating activities in the ordinary course of business of at least HK$30 million (previously HK$20 million) in aggregate for two (2) financial years immediately preceding the issue of the listing document
|Operating History and Management||Trading record period of at least three (3) years with:
Management continuity for at least the three (3) preceding financial years; and
Ownership continuity and control for at least the most recent audited financial year
|Trading record of at least two (2) financial years with:
Substantially the same management throughout the two (2) full financial years; and
A continuity of ownership and control throughout the full financial year immediately preceding the issue of the listing document
|Minimum Market Capitalisation
(previously HK$200 million)
(previously HK$100 million)
|Minimum Public Float
(25% of the issuers’ total issued share capital at the time of listing)
(previously HK$50 million)
(previously HK$30 million)
|Spread of Shareholders
|Minimum 300 holders||Minimum 100 persons|
|Offering Mechanism||A new applicant may not list by way of placing only if there is likely to be significant public demand for its securities
|Offering to the public of not less than ten (10) percent of all securities offered, previously, shares are allowed to be fully placed out
|Post-IPO Lock-up period on controlling shareholders||Cannot sell shares for the first six (6) months upon listing
For the subsequent six (6) months controlling shareholders may sell shares but should retain control
|Cannot sell shares for the first year (previously 6 months) upon listing
For the subsequent one year (previously 6 months), controlling shareholders may sell shares but should retain control
The diagrams below set out the latest Listing Rules for Main Board and GEM.
DIAGRAM OF THE BASIC LISTING RULES FOR MAIN BOARD OF HKEX
DIAGRAM OF THE BASIC LISTING RULES FOR GEM OF HKEX
One of the key changes to the GEM Listing Rules is that the applicant’s positive cashflow generated from its operating activities in the ordinary course of business has increased from at least HK$20 million to at least HK$30 million in aggregate for the last two financial (2) years. The Hong Kong regulators believe that in doing so, the overall quality of GEM will be raised by attracting applicants with stronger cashflow records.
There is also an increase of minimum market capitalisation from HK$100 million to HK$150 million for GEM and from HK$200 million to HK$500 million for the Main Board. The rationale for the increase of minimum market capitalisation is to ensure that that is a clear distinction between Main Board and GEM and preserve the Main Board’s position as a market for larger companies.
In respect of GEM listed companies, the post-IPO lock-up period for the controlling shareholders of GEM has been extended from one (1) year to two (2) years. By having a two (2) year lock-up period, the likelihood of companies being listed in order for them be sold for a future back door listing (infamously known as the “shell game”) may be reduced. Furthermore, the mandatory public offering requirement of at least 10% of total offer size for GEM would address the lopsided or high concentration of shareholding at listing. As a result, this would offer a broader shareholders base which is likely to reduce post-listing share price volatility of GEM issuers.
Despite the recent changes to the Listing Rules, the Exchange remains an attractive platform for foreign investors to make a name for themselves in the global financial hub and historically, Hong Kong had been recognised as one of the most vibrant capital markets in Asia and globally. In recent years it appears that there will be an increasing interest amongst Malaysian companies to list their companies’ shares on the Exchange.
Listing in Hong Kong is perennially attractive as the Exchange remains a premier stock exchange that offers a trusted platform to reach a broad range of investors to help fuel the issuer’s business growth. As the Exchange’s market sentiment continues to be strong coupled with its ability to provide sustainable growth and ample liquidity, the Exchange is a much sought after IPO destination especially for companies in Asia.