THE HONG KONG STOCK EXCHANGE PUBLISHED THE CONSULTATION PAPER ON RULE AMENDMENTS FOLLOWING MAINLAND CHINA REGULATION UPDATES

On 24 February 2023, The Stock Exchange of Hong Kong Limited (the “Exchange”) published its consultation paper (the “Consultation Paper”) seeking public feedback on the proposed consequential amendments to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) following the change of regulations in the People’s Republic of China (the “PRC”) with details as set out below.

I. Regulation Updates in the PRC
The following two regulations (the “New PRC Regulations”) will take effect from 31 March 2023:

State Council

(b) the “Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies” （《境内企業境外發行證券和上市管理試行辦法》）and related guidelines issued by the China Securities Regulatory Commission (“CSRC”) on 17 February 2023.

In light of the implementation of the New PRC Regulations, the following two regulations will be repealed on 31 March 2023:

Mandatory Provisions

(b) the Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies（國務院關於股份有限公司境外募集股份及上市的特別規定）issued by the State Council on 4 August 1994, as amended, supplemented or otherwise modified from time to time (the “Special Regulations”).

Pursuant to the New PRC Regulations, PRC issuers shall formulate their articles of association in line with the Guidelines for the Article of Association of Listed Companies issued by the CSRC. As holders of domestic shares and H shares (both being ordinary shares) are no longer deemed as different classes of shareholders, the current applicable class meeting requirements are no longer necessary.
In addition, the New PRC Regulations introduce a new filing regime (the “New Filing Requirements”) which requires PRC companies to register their direct and indirect overseas listings and securities offerings with the CSRC by filing materials on key compliance issues.

II. Consequential Amendments to the Listing Rules
In view of the upcoming implementation of the New PRC Regulations, the Exchange will amend the Listing Rules, without market consultation, as follows:

(a) amend Chapter 19A to remove the class meeting and related requirements for issuance and repurchase of shares by PRC issuers;

(b) amend Chapter 19A to remove the requirements for disputes involving H shareholders to be resolved through arbitration;

(c) repeal Appendix 13D which requires PRC issuers’ articles of association to include the Mandatory Provisions and other ancillary requirements; and

(d) amend the documentary requirements for new listing applications in Chapters 9 and 19A to reflect the New Filing Requirements.

The amended Listing Rules will become effective on a date to be announced by the Exchange, subject to the necessary regulatory approvals. During the period between the repeal of the Mandatory Provisions and the amendments to the Listing Rules becoming effective, the Exchange will allow new listing applicants incorporated in the PRC to comply with the Listing Rules taking into account the consequential amendments if they are listed on the Exchange during such time gap.
For the avoidance of doubt, PRC issuers must still adhere to their existing articles of association concerning class meetings for certain resolutions and other provisions required under the Mandatory Provisions, where applicable before they amend their articles of association.
III. Other Proposed Amendments to the Listing Rules
As holders of domestic shares and H shares (both are ordinary shares) are no longer deemed as different classes of shareholders under the New PRC Regulations, the Exchange proposes to modify the Listing Rules that address issues arising from domestic shares and H shares being treated as different classes. In view of other developments in PRC law and the financial market in the PRC, the Exchange further proposes to remove or modify certain additional shareholder protection requirements specific to PRC issuers:

(a) amend the Listing Rules, so as to allow the limits on the general mandate for issuing new shares and scheme mandate for share schemes to be calculated with reference to a PRC issuer’s total issued shares (instead of referencing to each of domestic shares and H shares);

(b) remove the requirements for directors, officers and supervisors of PRC issuers to provide undertakings to the issuers and their shareholders to comply with the Company Law of the PRC and the articles of association;

(c) move the followings requirements from Chapter 19A (for PRC issuers) to Chapter 3A (for all issuers): (i) requirements for issuers to provide access to their compliance advisers at all times, and (ii) requirements for the compliance advisers to inform the issuers on a timely basis of any amendment to the Listing Rules and applicable laws and regulations in Hong Kong;

(d) remove other requirements in Chapter 19A relating to the role of sponsors and compliance advisers and their termination and replacement;

(e) remove other requirements in Chapter 19A relating to (i) online display or physical inspection of documents, and (ii) disclosure of material differences in laws and regulations between the PRC and Hong Kong in the listing documents of PRC new applicants; and

(f) remove provisions in Chapter 19A which duplicate other Listing Rules or are outdated.

IV. Summary on the Major Amendments to the Listing Rules

Subject	Proposed Amendments
Definitions of “domestic shares” and “H shares” and references to “classes” of shares	Definitions of “domestic shares” (being shares issued by a PRC issuer in Renminbi), “foreign shares” (being shares issued by a PRC issuer in a currency other than Renminbi) and “overseas listed foreign shares” under Rules 1.01 and 19A.04 are removed. Definition of H shares under Rule 19A.04 is amended to refer to shares of a PRC issuer which are listed on the Exchange.
Class meeting requirement	Rules 19A.25 and 19A.38 (and the related references in Rule 13.36(1)) and Paragraphs 56 and 65(a) of Rule 19A.42 are amended such that: the class meeting requirement is removed; issuance and repurchase of shares by PRC issuers will no longer require a special resolution in general meeting; shareholders’ approval requirement for pre-emptive issuance of shares is exempted; and the exemption for issuance of shares under a PRC issuer’s plan adopted at the time of its establishment and implemented within 15 months from the date of the approval by the CSRC is removed. Rule 19A.12 is retained such that approval of holders of H shares is required for a withdrawal of listing on the Exchange under Rules 6.11, 6.12, 6.15 and 6.16.
Qualifications for listing	Rule 19A.13A is added to amend Rule 8.08 of the Listing Rules t to require a PRC issuer having shares apart from the H shares for which listing is sought (e.g. A and H shares) should have a public float of at least 25% of the issuer’s total number of issued shares, and that the issuer’s H shares to be listed must represent at least 15% of its total number of issued shares, having an expected market capitalisation at the time of listing of not less than HK$125 million. Rule 19A.17 is retained and specifies that Rules 8.19(1), 8.20 and 13.26(1) should only apply to H shares of a PRC issuer. In particular, a PRC issuer should obtain the Exchange’s listing approval for trading H shares on the Exchange.
Documentary requirements for new listing applications in Chapters 9 and 19A to reflect the New Filing Requirements	Current requirements on compliance with Mandatory Provisions and Special Regulations are removed. Rule 9.11(23b) is added to require new applicants (including those incorporated in the PRC or other jurisdictions) to submit, at least four (4) clear business days before the expected hearing date, a notification issued by the CSRC confirming their completion of the PRC filing procedures, where the new applicant’s application for listing on the Exchange is required to be filed with the CSRC.
Timing requirement on despatches of circulars and listing documents	Rules 19A.39A and 19A.39B are repealed such that the PRC issuers are only required to despatch circulars and listing documents as with other issuers, i.e. at the same time as (or before) the notice of the general meeting is given. Since 2019, the notice period for special general meetings of PRC issuers has been shortened from 45 days to 15 days.
Articles of association	Rules 9.11(20) and 13.51(1) are amended to remove the references to Appendix 13, and that Appendix 13D contains the requirements that PRC issuers’ articles of association should include the Mandatory Provisions and the ancillary provisions are repealed.
Calculation of market capitalisation for notifiable transactions	Rule 19A.38A is amended to revise the applicability of Rule 14.07(4) for PRC issuers as follows: non-H shares of a PRC issuer listed on a PRC stock exchange shall be determined based on the average closing price of those shares for the five (5) business days immediately preceding the transaction for calculation of the market capitalisation; and where a PRC issuer has issued unlisted shares (instead of referring to domestic shares specifically), the market capitalisation of its unlisted shares is calculated by reference to the average closing price of its H shares for the five (5) business days preceding the transaction.
Mandate limits on share issuance	Given the removal of the class distinction between domestic shares and H shares and the corresponding class meeting requirement, Rule 19A.38 is amended such that the general mandate and the scheme mandate would be subject to an overall cap of 20% and 10% respectively, of a PRC issuer’s total issued shares instead of a separate mandate limit for domestic and H shares respectively.
Arbitration	Removed Rules 19A.52(2), 19A.54(3) and 19A.55(3) and Paragraph 65(e) of Rule 19A.42 relating to arbitration requirements, such that it will align with the Listing Rules applicable to overseas issuers which do not provide similar arbitration requirements.

V. Analysis and Takeaways

We would like to highlight that PRC issuers, as well as Hong Kong and overseas-incorporated issuers with their principal operations in the PRC, such as red chip and companies with VIE structure, will be required to submit filing materials to the CSRC for its overseas listing in accordance with the New Filing Requirements. Accordingly, the CSRC notification confirming the completion of the said filing procedures becomes essential for issuers with their principal operations in the PRC.

The New PRC Regulations provide a timely opportunity for the Exchange to reflect and review the Listing Rules applicable to PRC issuers while maintaining the same level of protection offered to shareholders of all issuers regardless of the issuer’s place of incorporation. As such, we generally welcome the Exchange’s proposals and the proposed Listing Rules that will give effects to the proposals.

Please contact our Mr. Rodney Teoh (Partner) for any enquiries or further information.