On 26 September 2023, The Stock Exchange of Hong Kong Limited (HKEx) published a consultation paper on the proposed changes to the Listing Rules of the Growth Enterprise Market (GEM), having seen a decline of new GEM listings since 2019 and considering the recent success of the Beijing Stock Exchange in attracting listings of small and medium-sized enterprises.

The main proposals comprise:

  1. introduction of a "market capitalisation/ revenue/ R&D test", as a new financial eligibility test, to attract high growth potential and research-driven companies to Hong Kong and the Greater Bay Area;
  2. removal of the mandatory quarterly reporting requirement, to align GEM's requirements with those for Main Board issuers, and hence addressing concerns regarding the ongoing compliance cost of a GEM listing;
  3. new streamlined mechanism for transfer to the Main Board, such that the transfer applicant will no longer be required to appoint a sponsor to conduct due diligence or issue a prospectus for its transfer, but will only be required to submit certain application documents, subject to certain new criteria such as having:
    1. complied with HKEx's requirement regarding financial results for three full financial years as a GEM-listed issuer prior to its transfer, with ownership continuity and control, and no fundamental change in principal business throughout;
    2. reached the Minimum Daily Turnover Threshold on at least 50% of the trading days over the reference period (i.e. 250 trading days preceding the transfer application to the day of commencement of dealings in issuer's securities on the Main Board) (Reference Period); and
    3. had a volume-weighted average market capitalisation over the Reference Period that could meet the minimum market capitalisation requirement for listing on the Main Board.

This is a welcome step towards revamping the platform for emerging companies' fundraising and growth in Hong Kong.

HKEX'S PROPOSED EXPANSION OF PAPERLESS LISTING REGIME

On 30 June 2023, HKEx published the conclusions of the consultation on expanding the paperless listing regime and certain rule amendments, in an effort to foster environmental sustainability and to support the global initiatives towards greener economies and a sustainable future. The amended rules regarding (a) reducing submission documents and mandating document submission by electronic means, and (b) mandating electronic dissemination of corporate communications by listed issuers to securities holders after listing will be effective on 31 December 2023. On 27 October 2023, HKEx also published a list of relevant Frequently Asked Questions which will also take effect on 31 December 2023.

Major changes regarding documents submission include:

  1. reducing the number of submission documents required for new listing applicants; codifying the obligations of relevant parties to obtain necessary authorisations and consents for their respective actions; and removing unnecessary signature or certification requirements for certain submission documents; and
  2. mandating electronic means as the only mode of submission, unless otherwise specified in the listing rules or required by HKEx. For example, HKEx will establish a new online platform as a designated channel for communication between the Listing Division and new applicants/ listed issuers for the purpose of submitting documents and e-Forms electronically.

In addition, HKEx will liaise further with the Hong Kong Companies Registry on the digitalisation of the prospectus authorisation and registration processes, and expects to issue guidance to inform the market of the final arrangements in due course.

Major changes regarding mandating electronic dissemination of corporate communications by listed issuers to securities holders after listing include:

  1. mandating that listed issuers are obliged to disseminate corporate communications to their securities holders electronically if this is permitted by applicable laws and regulations and the respective issuers' constitutional documents, unless a hard copy is requested by securities holders; and
  2. allowing an implied consent mechanism for electronic dissemination of corporate communications, to simplify the process of disseminating corporate communications and to reduce the administrative burdens of listed issuers, if it is permitted under applicable laws and regulations and the constitutional documents of the respective issuers.

We recommend that existing listed issuers and new listing applicants review their constitutional documents and, if necessary, consult their legal advisers to determine if these documents contain provisions that restrict or prevent electronic dissemination of corporate communications to their shareholders or other securities holders, in order to make appropriate amendments that facilitate compliance with the relevant proposed listing rule amendments.

Appleby's Hong Kong Capital Markets team is highly regarded for its extensive expertise in supporting offshore companies with IPOs, introductions, placements and listings of both equity and debt securities on the Hong Kong, US, Singapore and many other internationally recognised stock exchanges.

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