Introduction
On 15 December 2017, Hong Kong Exchanges and Clearing Limited (“HKEX”) published the Consultation Conclusions (the “Conclusions”) on the Review of the Growth Enterprise Market (“GEM”) and Changes to the GEM and Main Board Listing Rules. The revised Listing Rules took effect from 15 February 2018 with transitional arrangements.
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Highlights Revised GEM listing requirements with effect from 15 February 2018:
Revised Main Board listing requirements with effect from 15 February 2018:
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Under the revised regime, Growth Enterprise Market (创业板) is renamed as “GEM” for both English and Chinese names and repositioned from a market for emerging companies to a market for small to mid-sized companies.
All the proposals in the consultation paper are adopted except for the proposals regarding the (a) the admission requirements for GEM transfer to the Main Board; and (b) extending the post-IPO lock up requirement on controlling shareholders for Main Board listing applicants which are not adopted.
Key Conclusions
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Current requirements |
Revised requirements |
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| A. Transfer from GEM to Main Board
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Positioning |
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| B. GEM Listing requirements | ||
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Cash flow requirement |
Minimum operating cash flow of HK$20 million |
Minimum operating cash flow of HK$30 million |
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Minimum market capitalisation at the time of listing |
HK$100 million |
HK$150 million |
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Minimum public float value at the time of listing |
HK$30 million |
HK$45 million |
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Post-IPO lock-up period for controlling shareholders |
Cannot sell shares for the first 6 months upon listing; may sell shares for the next 6 months but should retain control |
Cannot sell shares for the first 12 months upon listing; may sell shares for the next 12 months but should retain control |
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Offering mechanism |
100% placing allowed subject to full disclosure in the listing document |
Align with Main Board where mandatory public offering of at least 10% of the total offer size |
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Placing to core connected persons/connected clients/existing shareholders and their close associates |
No restriction provided full disclosure is made in the listing document |
Align with Main Board where waiver/consent of The Stock Exchange of Hong Kong Limited is required |
| C. Main Board Listing requirements | ||
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Minimum market capitalisation at the time of listing |
HK$200 million |
HK$500 million |
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Minimum market capitalisation at the time of listing |
HK$50 million |
HK$125 million |
Transitional Arrangements in relation to Listing Applications
Listing applications submitted before 15 February 2018
Listing applications submitted to the HKEX before 15 February 2018 will be processed in accordance with the GEM or Main Board Listing Rules in force as at the date of the Conclusions. Only one renewal of such applications will be permitted thereafter.
Listing applications submitted on or after 15 February 2018
Listing applications submitted to the HKEX on or after 15 February 2018 will be processed in accordance with the revised GEM or Main Board Listing Rules.
Transitional Arrangements in relation to GEM Transfer Applications
GEM transfer applications submitted before 15 February 2018
Applications to transfer from GEM to the Main Board that are submitted by eligible issuers before 15 February 2018 and have not lapsed, been rejected or returned as at that date, will be processed under the GEM streamlined process. The eligibility for the Main Board will be assessed in accordance with the Main Board Listing Rules in force at the date of the Conclusions, i.e. 15 December 2017. Only one renewal of such applications will be permitted thereafter.
GEM transfer applications submitted from 15 February 2018 to 14 February 2021
The Conclusions provide a 3-year transitional period. All GEM transfer applications submitted by eligible issuers within the period from 15 February 2018 to 14 February 2021 will have eligibility for the Main Board assessed in accordance with the Main Board Listing Rules in force as at the date of the Conclusions, i.e. 15 December 2017, and subject to the following requirements:
(a) applicants that have changed their principal businesses and/or controlling shareholders since listing on GEM will be required to:
• appoint a sponsor to conduct due diligence; and
• publish a listing document as a new listing applicant to the Main Board; or
(b) applicants that did not change their principal business and controlling shareholders since listing on GEM will only need to:
• prepare a GEM transfer announcement in connection with its GEM transfer; and
• appoint a sponsor to conduct due diligence in respect of their activities during the most recent full financial year and up to the date of the GEM transfer announcement to ensure that the information in the GEM transfer announcement is accurate, complete and not misleading.
Implications
One of the main implications of the HKEX’s proposal was the reform of GEM as a stand-alone board. Without the streamlined transfer process, GEM transfer applicants will be required to appoint a sponsor to conduct due diligence and publish a “prospectus-standard” listing document for its transfer application.
Nevertheless, in the light of the three-year transitional arrangement, eligible GEM issuers without change of principal business nor controlling shareholders since listing will still be allowed to only issue a GEM transfer announcement and appoint a sponsor to conduct due diligence in respect of their activities during the most recent full financial year for their transfer application to the Main Board.
Another amendment to the rules relates to a controlling shareholder’s lock-up period after a GEM listing. Following the revision, the post IPO lock up will be extended to a “12+12” lock up period, in the sense that the controlling shareholder(s) cannot dispose any of the issuer’s shares held by it (with exceptions) during the first year after listing and must retain a controlling stake of the issuer for the subsequent year.
This newsletter is for information purposes only. Its content does not constitute legal advice, and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage.
Please contact our Hank Lo or Rodney Teoh for any enquiries or further information.