Hong Kong: Listing PRC Companies in Hong Kong

Last Updated: 23 August 2005

Background

Hong Kong is an attractive place for PRC and international companies to do fund raising. The Hong Kong Stock Exchange currently ranks 8th in the world by market capitalization while Shanghai, Singapore and Shenzhen are in 14th, 21st and 24th position respectively. In 2004, Hong Kong ranked 2nd in the world after New York, in terms of equity funds raised, with Shanghai, Shenzhen and Singapore ranking 13th, 20th and 28th respectively.

Mainland enterprises listed in Hong Kong accounted for 28.13% of the total market capitalization of the Hong Kong market at the end of 2004. The ten largest IPOs in Hong Kong since 1993 have all been by mainland enterprises. In 2003, 8 of 10 of the largest IPOs were mainland enterprises.

Basic Listing Requirements for PRC companies

The following are the major basic requirements for listing a PRC company in Hong Kong :-

To list in Hong Kong, an applicant can, based on its own circumstances, apply to list on the Main Board or the Growth Enterprise Market ("GEM") pursuant to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited or the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited ("the Listing Rules"). Both the issuer and its business must, in the opinion of the Stock Exchange, be suitable for listing and its accounts must be prepared in accordance with either Hong Kong Financial Reporting Standards or International Financial Reporting Standards.

A new applicant for the Main Board must have a trading record of not less than three financial years under substantially the same management and ownership and meet one of the following three financial criteria :-

 

1. Profits Test

2. Market Cap/ Revenue Test

3. Market Cap/ Revenue/ Cashflow Test

Profits Attributable to Shareholders

At least HK$50 million in the last three financial years (with profits of at least HK$20 million recorded in the most recent year, and aggregate profits of at least HK$30 million recorded in the two years before that)

   

Market Cap

At least HK$200 million at the time of listing

At least HK$4 billion at the time of listing

At least HK$2 billion at the time of listing

Revenue

 

At least HK$500 million for the most recent audited financial year

At least HK$500 million for the most recent audited financial year

Cashflow

 

At least 1,000 shareholders at the time of listing

Positive cashflow from operating activities of at least HK$100 million in aggregate for the three preceding financial years

A new applicant for GEM is not required to meet any profit or financial standards requirement but it must demonstrate at least 24 months of "active business pursuits" and a focused line of business immediately preceding the date of submission of the listing application, conducted under substantially the same management and ownership.

No matter whether listing on the Main Board or GEM, the new applicant must meet the relevant requirements relating to public float and spread of shareholders in accordance with the Listing Rules.

In addition to the above basic requirements, PRC issuers must satisfy the following requirements :-

  1. the issuer must be duly incorporated in the PRC as a joint stock limited company;
  2. the Stock Exchange has to be satisfied that there are adequate communication and cooperation arrangements in place between the Stock Exchange and the relevant securities regulatory authorities in the PRC;
  3. in the case of a PRC issuer having equity securities listed or being listed on another stock exchange, the Stock Exchange has to be satisfied that there are adequate communication arrangements in place between the Stock Exchange and such other stock exchange authority;
  4. the Stock Exchange has to be satisfied that applicable PRC laws and the articles of association of the PRC issuer provide a sufficient level of shareholder protection to holders of H shares;
  5. the PRC issuer must appoint, and maintain, throughout the period its securities are listed on the Stock Exchange, the appointment of a person authorized to accept service of process and notices on its behalf in Hong Kong;
  6. only securities registered on the Hong Kong register may be traded on the Stock Exchange;
  7. the secretary of a PRC issuer need not be ordinarily resident in Hong Kong, provided such person can meet the other requirements of the Listing Rules;
  8. the independent non-executive directors of a PRC issuer must be able to demonstrate an acceptable standard of competence and adequate commercial or professional experience to ensure that the interests of the general body of shareholders will be adequately represented. Moreover, at least one of the independent non-executive directors must be ordinarily resident in Hong Kong;
  9. the supervisors of a PRC issuer must have the character, experience and integrity and be able to demonstrate a standard of competence commensurate with their position as supervisors.

Our Services

Lawyers in our Corporate Commercial Department in our Hong Kong and Shanghai offices advise on corporate finance for local Hong Kong companies as well as foreign and domestic enterprises in the PRC. Please contact us if you have any queries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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