Dual listing refers to a situation where a company's shares are listed and traded on two different stock markets. A company seeking to raise funds from the capital markets may launch a primary listing of its shares on a stock market through an initial public offering ("IPO"). At the same time, or subsequent to the primary listing, such company may also seek to list its shares on another stock market as a secondary listing.
Dual listing offers benefits for both the company and its investors. From the company's perspective, dual listing broadens its shareholder base, raising its profile and increasing its visibility in the global market, which allows the company to seek financing from, and further expand its business into, other markets. From the investors' perspective, the dual listing of a foreign company in their home country brings foreign stocks closer to them and allows them to diversify their investments.
2. Secondary Listing in Hong Kong
An overseas issuer may apply for secondary listing in Hong Kong if it is able to satisfy the qualification requirements under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Ltd (the "Listing Rules"), including the additional requirements set out in Chapter 19 of the Listing Rules.
The rules governing secondary listings in Hong Kong underwent a significant change in the past few years. Under the joint policy statement (the "Statement") regarding the listing of overseas companies on The Stock Exchange of Hong Kong Ltd ("HKEx") issued jointly by the Securities and Futures Commission of Hong Kong ("SFC") and HKEx on 27 September 2013, a secondary listing applicant must have "a large market capitalization and a long track record of regulatory compliance on its primary market." 1 It is noteworthy that companies that have their "centre of gravity" in the Greater China region were regarded not suitable for secondary listings in Hong Kong pursuant to the Statement. These policies aim to prevent certain overseas issuers, which may come from an unrecognised stock exchange (as jointly determined by HKEx and the SFC), from evading the more stringent rules of primary listing in Hong Kong imposed by HKEx and the SFC by seeking secondary listing on HKEx instead.
Last year, however, HKEx promulgated a series of new rules to boost the prosperity of Hong Kong's capital markets, including easing the regulatory requirements for secondary listings and adding a new listing route for biotech companies, among other things. In April 2018, HKEx added a new Chapter 19C to the Listing Rules, providing "a new concessionary route" to secondary listing for large emerging and innovative companies with primary listings on major international exchanges.2
According to HKEx's report in May 2019, over US$90 billion has been raised via the new listing regime so far, strengthening Hong Kong's position as the listing market of choice for potential issuers. It was also reported that Alibaba, the famous Hangzhou-based technology company, is seeking its secondary listing on HKEx via this new concessionary route in the second-half of 2019, looking to raise US$10 to 20 billion.
3. Secondary Listing under the New Concessionary Route
Since 30 April 2018, HKEx has started to implement the newly added Chapter 19C of the Listing Rules which provides a "new concessionary route" to secondary listings in Hong Kong for large emerging and innovative companies which are primary listed on major international exchanges.
Under this new concessionary route, it becomes easier for a "Qualifying Issuer" (being an issuer primary listed on a "Qualifying Exchange," and "Qualifying Exchange" includes the New York Stock Exchange LLC, the Nasdaq Stock Market or the Main Market of the London Stock Exchange plc (and belonging to the UK Financial Conduct Authority's "Premium Listing" segment)) to conduct secondary listing in Hong Kong.
Notwithstanding the policy against secondary listing of Greater China companies in Hong Kong under the Statement mentioned above, this new concessionary route of secondary listings on HKEx under Chapter 19C is open to both "Greater China Issuers" (being Qualifying Issuers with their centre of gravity in the Greater China) as well as "Non- Greater China Issuers," with slightly different requirements as detailed below.
Type of applicant – large emerging and innovative company
A large emerging and innovative company, being a Qualifying Issuer, is normally considered as a suitable candidate for the purpose of secondary listing under the new Chapter 19C. According to Guidance Letter 94-18 issued by HKEx, HKEx normally assesses the suitability of a large emerging and innovative company by considering whether it has the following characteristics:
- The success of the company is demonstrated to be attributable to the application to the company's core business of: (i) new technologies; (ii) innovations; and/or (iii) a new business model, which also serve to differentiate the company from its peers.
- Research and development significantly contributes to the company's expected value and constitutes a major activity and expense of the company.
- The success of the company is demonstrated to be attributable to its unique features or intellectual property.
- Compared with the value of company's tangible asset, the company has an outsized market capitalisation or intangible asset value.
A large emerging and innovative company should possess more than one of the above characteristics to demonstrate its suitability for secondary listing under Chapter 19C. HKEx further emphasises that only adopting new technology to a conventional business is insufficient to qualify this company for secondary listing under Chapter 19C.
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1 For more details, please see https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Rules-and-Guidance/Other-Resources/Listing-of- Overseas-Companies/Joint-Policy-Statement-20130927/new_jps_0927.pdf.
2 For more details, please see https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/February-2018- Emerging-and-Innovative-Sectors/Conclusions-(April-2018)/cp201802cc.pdf?la=en.
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