The Listing Committee of The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited, announces today (Wednesday) interim guidance on pre-IPO investments pending consultation on possible amendments to the Listing Rules.
The Listing Committee notes that some market practitioners have expressed concern that recent decisions about pre-IPO investments may have caused some uncertainty about the principles to be applied and the Exchanges’ practice. The interim guidance is aimed to provide the market with more clarity.
Recently, the Listing Committee considered two cases where the pre-IPO investment agreements were signed on the date of submission of the listing application forms with settlement taking place later and close to the Listing Committee hearing date. The prices were at a deep discount to the IPO price. The pre-IPO investors would have received much more favourable terms than investors at the IPO stage.
In both cases, the Listing Committee decided, after carefully considering the terms and circumstances of the pre-IPO investments, that they contravened the Listing Rule principles that the issue and marketing of securities must be conducted in a fair and orderly manner and all holders of securities must be treated fairly and equally. The Listing Committee considered that either the investments should be retracted or the listing timetable extended so that the pre-IPO investors would be exposed to risks significantly different from those assumed by investors investing at the IPO stage.
In 2008, the HKEx Board engaged a consultant to conduct a strategic review of the Listing Rules and their application. The consultant noted that market practitioners find it difficult to identify consistent requirements on pre-IPO investments. The consultant also recommended a review of the placing guidelines in view of current market practice. The Exchange aims to start consultation in the near future on whether and if so, how the placing guidelines and relevant Listing Rules should be amended.
Under the interim guidance, the Exchange will generally require, except in very exceptional circumstances, that pre-IPO investments must be completed either (a) at least 28 clear days before the date of the first submission of the first listing application form or (b) 180 clear days before the first day of trading of the applicant’s securities. Pre-IPO investments are considered completed when the funds are irrevocably settled and received by the applicant. For clarity, clear days exclude the day of the pre-IPO investment completion, the day of the submission of the listing application form and the first day of trading of securities.
The Listing Committee recognises that there may be circumstances where pre-IPO investments on terms more favourable than those offered to investors at the IPO may be justifiable, eg where the applicant is in severe financial distress. Each case will need to be considered based on its own facts and circumstances.
Potential applicants are encouraged to consult the Listing Division before submission of listing applications if they have any questions.
Notes:
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Over the years, the Listing Committee has been asked to consider matters relating to pre-IPO investments on terms more favourable than those available at the IPO stage. It has based its decisions on the principles in Main Board Listing Rule 2.03(2) and (4)/GEM Rule 2.06(2) and (4), which state that the Listing Rules are designed to ensure that investors have and can maintain confidence in the market and in particular that:-
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(2) |
the issue and marketing of securities is conducted in a fair and orderly manner…;
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and
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(4) |
all holders of listed securities are treated fairly and equally; ….
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The Exchange has published Listing Decision Series 36, 55 and 59 relating to pre-IPO investments, which can be found on the HKEx website. In addition, the Listing Committee commented on how it dealt with pre-IPO investments issues in its annual reports for 2006 and 2007, which can also be found on the HKEx website. |
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