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Exchange Publishes Consultation Conclusions on Corporate WVR

Regulatory
30 Oct 2020

  • Exchange announces way forward on Corporate Weighted Voting Rights (Corporate WVR)
  • New grandfathering arrangements introduced to enable qualifying issuers with Corporate WVR to seek secondary listings in Hong Kong
  • Strong investor protection safeguards to remain in place

 

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published conclusions to its consultation on the Corporate WVR beneficiaries (Consultation Conclusions) 1.

Consultation Conclusions

The Exchange received 65 responses to its Consultation Paper on Corporate WVR Beneficiaries (Consultation Paper) from a broad range of respondents that were representatives of all stakeholders in the Hong Kong market2. While a majority of respondents agreed, in principle, that corporate WVR beneficiaries should be permitted, there were very diverse views and expectations as to how the proposed regime would operate in practice and whether (and if so what) modifications were required for it to operate as intended.

“After carefully considering the feedback from respondents, we have decided to give more time for the market to develop a better understanding of Hong Kong’s regulatory approach towards regulating listed companies with WVR structures and their controllers, and for regulators to monitor that the existing Listing Rule Chapter 8A regime operates as intended,” said Bonnie Y Chan, HKEX’s Head of Listing.

Way Forward

As a way forward, the Exchange will treat Greater China Issuers3 that are (a) controlled by corporate WVR beneficiaries4 (as at 30 October 2020); and (b) primary listed on a Qualifying Exchange5 (on or before 30 October 2020) (Qualifying Corporate WVR Issuers) in the same manner as current Grandfathered Greater China Issuers6 for the purposes of Chapter 19C of the Main Board Listing Rules.

“To secondary list here in Hong Kong, these Greater China issuers must demonstrate that they have been able to safeguard the interests of public investors through good regulatory compliance with their existing regulatory regimes.  The insight and understanding that we, and the market gain from this approach, will help inform any future amendments that we make to our WVR regime,” said Ms Chan.

Strong existing investor protection safeguards will apply to Qualifying Corporate WVR Issuers seeking to secondary list in Hong Kong. These issuers must:

(a)

meet a very high minimum market capitalisation threshold of at least $40 billion, or at least $10 billion with at least $1 billion of revenue for its most recent audited financial year7;

(b) be an “innovative company” as part of the demonstration of their suitability for listing8; and

(c) demonstrate that the domestic laws, rules and regulations to which they are subject and their constitutional documents, in combination, provide certain shareholder protection standards (including that it will hold an annual general meeting each year and provide members holding 10% of the voting rights or more, on a one vote per share basis, with the right to convene an extraordinary general meeting) 9.

Like other secondary issuers listed under Chapter 19C of the Main Board Listing Rules, Qualifying Corporate WVR Issuers would be exempt from certain Listing Rules (eg notifiable transaction and connected transaction Listing Rules) 10. However, if trading in their shares migrates to the Exchange’s markets on a permanent basis, these exemptions would fall away. The Exchange would then treat the issuer as having a dual-primary listing and it would be required to comply with the Listing Rules that apply to such issuers after a grace period of one year11. The Exchange would allow these issuers to retain their existing Corporate WVR structures at that time, as already permitted for all Grandfathered Greater China Issuers12.

The Consultation Conclusions and respondents’ submissions are available on the HKEX website.

 

Notes:

  1. The Consultation Paper was published on 31 January 2020.  The consultation period ended on 31 May 2020 after being extended to give more time to all those who wanted to respond to the consultation to do so following the significant changes to working arrangements that occurred due to outbreak of COVID-19.
  2. Three responses were considered to be duplicates of other responses.
  3. An issuer with its centre of gravity in Greater China as defined by Chapter 19C of the Main Board Listing Rules.
  4. “Controlled by corporate WVR beneficiaries” means that a single corporate WVR beneficiary (or a group of corporate beneficiaries acting in concert) holds the largest share of the voting power in the listed issuer, which must amount to at least 30% of shareholders’ votes carried by the issuer’s share capital, as at 30 October 2020.
  5. The following are “Qualifying Exchanges”: The New York Stock Exchange LLC, Nasdaq Stock Market and the Main Market of the London Stock Exchange plc (and belonging to the UK Financial Conduct Authority’s “Premium Listing” segment).
  6. The existing grandfathering arrangement allows Grandfathered Greater China Issuers (Greater China Issuers that primary listed on a Qualifying Exchange on or before 15 December 2017) that meet the eligibility and suitability requirements under Chapter 19C of the Main Board Listing Rules to secondary list in Hong Kong without having to amend their existing WVR structures (including Corporate WVR structures) to meet the Exchange’s own requirements.
  7. Main Board Listing Rule 19C.05. The expected market capitalisation threshold for an issuer without a WVR structure listing under the profit test of Main Board Listing Rule 8.05(1) (the most common listing route) is only $500 million.
  8. Section 3 of Guidance Letter HKEX-GL94-18 (April 2018).
  9. Main Board Listing Rules 19C.06 to 19C.10.
  10. Main Board Listing Rule 19C.11.
  11. Main Board Listing Rule 19C.13.
  12. Main Board Listing Rule 19C.12.

 

About HKEX

Hong Kong Exchanges and Clearing Limited (HKEX) is one of the world’s major exchange groups, and operates a range of equity, commodity, fixed income and currency markets.  HKEX is the world’s leading IPO market and as Hong Kong’s only securities and derivatives exchange and sole operator of its clearing houses, it is uniquely placed to offer regional and international investors access to Asia’s most vibrant markets.

HKEX is also the global leader in metals trading, through its wholly owned subsidiaries, The London Metal Exchange (LME) and LME Clear Limited.  This commodity franchise was further enhanced with the launch of Qianhai Mercantile Exchange (QME), in China, in 2018.

HKEX launched the pioneering Shanghai-Hong Kong Stock Connect programme in 2014, further expanded with the launch of Shenzhen Connect in 2016, and the launch of Bond Connect in 2017.

www.hkexgroup.com

 

 

Ends

Updated 30 Oct 2020