On 4 January 2021, China Business Law Journal published the A-list 2020: China’s Elite 100 Lawyers. We are delighted to announce that our firm’s partner and head of Corporate Finance, Hank Lo, has once again been recognised as one of China’s Elite 100 lawyers (Foreign firm) for 2nd consecutive year.

The list recognises leading lawyers in the China market. By conducting thousands of interviews with in-house counsels and partners of top law firms in Asia, the finalists are recognised for their landmark deals, cases and other notable achievements over the past year.

Hank, head of our firm’s Corporate Finance, specializes in capital markets, corporate finance and mergers and acquisitions. He has significant experience in advising issuers, sponsors and underwriters on initial public offerings on both the main and GEM boards of The Stock Exchange of Hong Kong Limited; advising publicly listed companies on a broad range of corporate finance transactions; advising private equity funds, venture capital funds and Hong Kong-listed companies on their investments in and exits from companies with an emphasis on China. He also advises companies in Mainland China on matters of property transactions, foreign investment and initial public offerings in other overseas stock markets.

For more information, please visit here or contact Mr. Hank Lo.

On 18 December 2020, The Stock Exchange of Hong Kong Limited (the “Exchange”) published the Consultation Conclusions on “Proposals to Introduce a Paperless Listing & Subscription Regime, Online Display of Documents and Reduction of the Types of Documents on Display” (the “Consultation Conclusions”). This followed its earlier consultation by way of its consultation paper published on 24 July 2020 on the relevant proposals (the “Consultation Paper”). In the Consultation Conclusions, the Exchange observed that, having given due consideration of the matter, it will implement all relevant proposals with minor modifications. As such, new arrangements will be put in place such that any application for listing of equities, debt securities and collective investment schemes by a new applicant requiring a listing document excluding any Mixed Media Offer (“MMO”) (as explained below) (“New Listing”), shall be paperless from 5 July 2021 onwards. Moreover, the new arrangements for displaying documents online to support listings and transactions shall take effect from 4 October 2021 onwards.

Paperless Listing and Subscription Regime

Noting, among other things, that some recent popular IPOs have been fully paperless and their subscription processes have operated smoothly without paper documentation, as well as the high internet penetration rate in Hong Kong, the Exchange concluded that save for situations where an issuer opts for an MMO, whereby an issuer can distribute paper application forms for public offers of certain securities without a printed prospectus under certain circumstances, the new requirements will apply such that (i) all listing documents in a New Listing must be published solely in an electronic format; and (ii) New Listing subscriptions, where applicable, must be made through online electronic channels only. These changes would be effective starting 5 July 2021. It should be noted that the current requirement for the publication of listing documents in newspapers would also be repealed.

The Exchange considered that any inconvenience caused to investors by the proposals would be minimal and significantly outweighed by the benefits including enhanced market efficiency, improved cost effectiveness and positive environmental impact. In the meantime, it mentioned that (i) it remains up to individuals to print listing documents from the e-Publication System (“EPS”) if they prefer to read hard copies; (ii) investors can instruct brokers or custodians to submit electronic applications on their behalf; and (iii) issuers who anticipate a high demand for printed applications forms for the IPO may still adopt an MMO.

If MMO is the medium adopted by an issuer of an IPO, it is important for these issuers to note that, (i) printed subscription forms are still required but they will not be accompanied by a printed form prospectus relating to the offer; (ii) the printed subscription forms must still comply with the Exchange’s guidance letter(s); and (iii) MMO issuers have to rely on retail brokers and / or share registrars for inputting orders from subscribers into the relevant online platform directly.

Online Display of Documents

Under the new arrangements, the Exchange would require issuers to post relevant documents, such as contracts pertaining to the transaction which facilitate shareholders’ assessment in respect of relevant notifiable transactions and connected transactions subject to shareholders’ approval (see discussion below), on both EPS and the issuer’s website while physical display of printed copies in tandem would no longer be required. It should be noted that display of documents on online platforms for inspection purpose is not entirely new to the Hong Kong listing regime, given that under the present regime material contracts and directors’ service agreements are already required to be made available electronically or online by other Hong Kong regulators. Incidentally, there would be no restriction for the public to download or print these electronic documents, nor would the identity of any person accessing the documents displayed online be recorded or verified by the issuers.

Undoubtedly, the display of documents online can facilitate documentary accessibility by both domestic and foreign investors alike. While it is noted that certain documents, such as contracts in relation to certain notifiable or connected transactions may contain confidential or proprietary information that may possibly be unsuitable for widespread distribution, protective measures such as specific disclosure relief (“Disclosure Relief”) are available to issuers in need upon their application for redaction of the relevant information. The Exchange will assess such application on a case-by-case basis. Redaction may be allowed in very limited circumstances as set out in the Guide on Applications for Waivers and Modifications of the Listing Rules (the “Waiver Guide”). Under its proposals, amendments will be made to the Waiver Guide to accommodate for information that is not material to the assessment of the subject transaction where the issuers can demonstrate to the satisfaction of the Exchange that, among other things, disclosure of the relevant information concerned would (i) breach the Personal Data (Privacy) Ordinance (Cap. 486) or other applicable privacy laws; or (ii) cause competitive harm to the applicant, such as where the information is a trade secret.

Considering that it would be onerous for PRC issuers to display the register online which is currently not required by the PRC law and to ensure consistency in the treatment of PRC issuers and other issuers, the register of members of PRC issuers would not be required to be displayed online, while such would continue be available for physical inspections.

Reduction of Documents on Display

The final proposal by the Exchange serves to reduce the documents required to be on display. In respect of relevant notifiable transactions and connected transactions subject to the approval of shareholders, only contracts pertaining to the concerned transactions are required for display. Contrarily, (i) material contracts entered into by the issuer within the last two years before the issue of the circular of a relevant notifiable transaction and (ii) contracts referred to in a connected transaction circular and directors’ service contracts (except for those expiring or determinable by the employer within one year without payment of compensation) would not be required for display under the new arrangements. Nonetheless, for the avoidance of doubt, regardless of the effect of the amendments relating to the reduction of documents on display, issuers would still be required to include a summary of material contracts and particulars of directors’ service agreements in the transaction circulars.

The new approach removed the requirement to display documents unrelated to the subject transaction and so are irrelevant to shareholders’ assessment of the particular transaction, which serves to further prevent unnecessary disclosure of sensitive information.

Implications

There is a historical reliance on printed publications and hard copy documents by Hong Kong’s securities market participants. With the implementation of the proposals, it is expected that the regime would become more environmentally conscientious, which is conducive to positioning Hong Kong as an international green finance centre and aligning it with the standards of other signatory markets to the United Nation’s Sustainable Stock Exchanges Initiative, such as NYSE, Nasdaq and LSE. The new arrangements are also expected to modernise the Hong Kong’s public offering processes, thus enhancing efficiency and transparency for market stakeholders. It should also be noted that stronger adherence to electronic means has been largely favoured by most institutions, regulators and activists as shown in the Consultation Conclusions, suggesting that a general favouring market sentiment for the greener path forward.

This article is authored by Rodney Teoh (Partner, Corporate Finance). Please contact our Rodney Teoh for any enquiries or further information.

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 arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

We are pleased to announce that our firm’s SW Private practice and Head of department, Ms. Catherine Por has for 3 consecutive years been recognised by the Chambers and Partners Asia-Pacific Guide.

In the Chambers Review:

• Department Profile- Family/Matrimonial Department (International Law Firm)

What the team is known for Solid family law practice handling a range of complex, contentious matters involving high-value assets. Especially skilled in ancillary relief cases. In addition to advising on divorce law, the team is also well versed in succession planning, probate applications and wardship issues. Also notable for non-contentious work, such as prenuptial and postnuptial agreements.

Strengths One practitioner observes: “They are traditionally strong in the market, and continue to be very competent and hard-working.”

• Notable Practitioners- Catherine Por; Partner and Head of SW Private

Catherine Por is well recognised for her expertise handling family and matrimonial matters. Considered “a very solid, calm and measured lawyer,” she is regularly sought out by clients to advise on post-separation financial and child issues, as well as trust and estate matters. “She is very experienced, very practical and firm about what her clients require and request,” says one source.

About Ms. Catherine Por

Catherine heads SW Private in the firm. She specializes in all aspects of family law disputes, and has extensive experience in complex financial claims, intervener proceedings, financial claims under Part IIA of the Matrimonial Proceedings and Property Ordinance (Chapter 192), Child Abduction cases, relocation of children, claims under the Guardianship of Minors Ordinance (Chapter 13), custody cases, pre-nuptial and post-nuptial agreements, contentious and non-contentious trust cases, contentious estate matters; cross border issues and enforcement proceedings. She has on a number of occasions provided expert legal opinions on Hong Kong Family Law.

Catherine is also an Accredited General and Family Mediator, Fellow of the Chartered Institute of Arbitrators and is a Notary Public and Civil Celebrant of Marriages.

About Chambers and Partners

Chambers has been the leading source of legal market intelligence for over 30 years with the aim to offer reliable recommendations on the best law firms and lawyers in Asia-Pacific, providing the information necessary for clients to make an informed decision. Candidates are reviewed based on 5 criteria: client services, commercial vision and business understanding, diligence, value for money and professional conduct.

Please click here to see the ranking or contact Ms. Catherine Por for further enquiries.

We are proud to announce that our firm’s Partner, Ms. Sherlynn G. Chan, has been named the winner of the Vulnerable Client Advisory Practice of the Year category at the STEP 2020/21 Private Client Awards (STEP Awards). Stevenson, Wong & Co. is the sole Hong Kong domestic law firm recognised by the STEP awards this year.

The results were announced at the first-ever virtual award ceremony which took place on 9 Dec 2020. The STEP awards celebrate excellence in private client practice and are widely seen as a hallmark of quality in the industry. The panel of international judges summarized: “In a field of remarkably compelling submissions, this year’s winner (of the Vulnerable Clients Advisory) stood out as a champion and a pioneer in a region where resources for vulnerable clients are still evolving. Their significant devotion to their clients and to the profession, and their technical skills and commitment to professional development are an inspiration to us all.”

Our partner Sherlynn commented: “I am deeply honoured and grateful to have been chosen as the winner of this international award of “Vulnerable Clients Advisory Practice of the Year” by the STEP Awards. I would like to take this opportunity to thank STEP for recognizing our achievement and my team for their amazing work. This is a very important and growing area of work in Asia, especially with the ageing population and increased number of vulnerable clients in our community including children, elderly and mentally incapacitated persons. We will continue to work hard in promoting awareness and protecting vulnerable clients. “

About Sherlynn G. Chan

Ms. Sherlynn Chan, Partner of our firm and the Chairman and founding member of a charitable organization, MIP Care Resources Connect, specialises in private client work including contentious probate and family matters. She served as a Deputy District Judge in the Family Court in 2014 and is currently the Chairman of the Mental Health Law Committee of the Law Society of Hong Kong and Co-Chair of the Societies of Trusts and Estate Practitioners (STEP) HK’s Mental Health, Elderly and Capacity Law Sub-Committee.

Sherlynn has been appointed by the High Court as Committee of the estate of mentally incapacitated persons and manages substantial assets on behalf of vulnerable clients.

This year’s finalists of the “Vulnerable Client Advisory Practice of the Year” award.

Mark Walley, CEO of STEP and Mary Duke TEP, Chair of the Presiding Judges, delivered the opening speeches.

About STEP

STEP is the global professional association for practitioners who specialise in family inheritance and succession planning. STEP works to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members. STEP members help families plan for their futures, from drafting wills to issues surrounding international families, protection of the vulnerable, family businesses and philanthropic giving. Full STEP members, known as TEPs, are internationally recognised as experts in their field, with proven qualifications and experience.

Please click here to view this year’s winners or click here to watch the ceremony.

Please contact Ms. Sherlynn Chan for more information or further enquiries.

On 27 November 2020, The Stock Exchange of Hong Kong Limited (the “Exchange”) published a consultation paper (the “Consultation Paper”) introducing its proposal to increase the profit requirement for a Main Board listing. Under the proposed changes, the Profit Requirement (defined below) will undergo either a 150% or a 200% increase, as explained further below. The consultation will last for two months, ending on 1 February 2021.

In proposing the change, the Exchange intended to align the current Profit Requirement with the increased Market Capitalisation Requirement (defined below) that was effective from February 2018, and which together with the current Profit Requirement had given rise to an increase in listing applications from small cap issuers with a relatively high historical price-to-earning (P/E) ratios. The Exchange commented that these small cap issuers tend to respond to the increased Market Capitalisation Requirement by justifying their higher valuations by reference to potential growth, supported by profit forecasts that they in certain cases failed to meet post listing. The Exchange has also quoted relevant regulatory concerns, such as the drop or volatility of share prices post listing, as well as potentiality of shell creation and market manipulation post listing, as the relevant mischiefs.

Current Profit Requirement

New applicants may be considered eligible for listing on the Main Board by satisfying, among other things, either one of the three financial requirements under Listing Rule 8.05.  These requirements are as follows: the Profit Requirement[1] – that, among other things, a new applicant shall have a minimum amount of profit attributable to shareholders, currently (1) HK$20 million in the most recent financial year and (2) HK$30 million in aggregate in the two preceding financial years (collectively, the “Profit Requirement”); the market capitalisation revenue cashflow requirement[2]; or the market capitalisation revenue requirement[3]. The Exchange has also introduced other eligibility requirements to attract different types of companies to list in Hong Kong, including the well-known Chapter 18A for biotech companies, and Chapter 18 for mineral companies.

An applicant relying on the Profit Requirement is also required to have an expected market capitalisation at the time of listing of at least HK$500 million (the “Market Capitalisation Requirement”)[4]. The current Market Capitalisation Requirement, i.e. HK$500 million, was effective from 15 February 2018, which was increased from HK$200 million previously.  With the Profit Requirement being unchanged at the time, this implied an applicant’s historical P/E ratio from 10 times to 25 times.

Proposed Changes

In the Consultation Paper, the Exchange proposed to increase the Profit Requirement by two options:

• Option 1 – 150% increase, which will increase the minimum amount of profit attributable to shareholders to (i) HK$50 million in the most recent financial year and (ii) HK$75 million in aggregate in the two preceding financial years; and
• Option 2 – 200% increase, which will increase the minimum amount of profit attributable to shareholders to (i) HK$60 million in the most recent financial year and (ii) HK$90 million in aggregate in the two preceding financial years.

According to the Exchange, Option 1 is based on the percentage increase in the Market Capitalisation Requirement in February 2018, while Option 2 is based on the approximate percentage increase in the average closing price of the Hang Seng Index from 9,541 in 1994 when the Profit Requirement was introduced to 27,569 in 2019.

To cope with relevant side issues, the Exchange also proposed temporary relief and transitional arrangements in association with the change proposed, as further explained below.

Temporary Relief

The Exchange recognised that, against the backdrop of the COVID-19 pandemic and the uncertainties arising from the economic and political tensions between the US and China, many companies’ businesses have been adversely affected. Therefore, subject to the adoption of the proposal to increase the Profit Requirement, the Exchange has proposed to introduce a temporary conditional relief from the profit spread in the increased Profit Requirement for applicants that are able to meet certain conditions set out in Chapter 2 of the Consultation Paper, summarised as follows:

• its aggregate profit during the track record period meets the aggregate profit threshold (i.e. HK$125 million under Option 1 or HK$150 million under Option 2);
• it had a positive cash flow generated from operating activities in the ordinary and usual course of business before changes in working capital and taxes paid in the last financial year during the track record period;
• it demonstrates that the conditions and circumstances leading to its inability to meet the profit spread in the Profit Requirement are temporary;
• the track record period must have at least consecutive six months that fall within the calendar year 2020; and
• adequate disclosure is made in its listing document, including:

  (i) the likelihood of continuance or recurrence of the circumstances leading to the applicant’s inability to meet the spread of the increased Profit Requirement;

  (ii) measures which were taken or will be taken by the applicant to mitigate the impact of those circumstances on future profitability; and

  (iii) a profit forecast covering the period up to the forthcoming financial year end date after the date of listing with detailed bases and key assumptions.

An applicant seeking the temporary relief will be required to submit an application to the Exchange for consideration on a case-by-case basis.

Transitional Arrangements

Pursuant to the Consultation Paper, the change will come into force (the “Rule Amendment Effective Date”) not earlier than 1 July 2021. To reduce the impact of the proposal on companies that have commenced plans to apply for a Main Board listing relying on the current Profit Requirement, the Exchange will introduce transitional arrangements.

Main Board listing applications (including GEM Transfer applications) will be assessed under the current Profit Requirement if they are submitted before the Rule Amendment Effective Date and remain active as of the Rule Amendment Effective Date. Such application will be allowed to be renewed once after the Rule Amendment Effective Date for continued assessment under the current Profit Requirement. For any subsequent renewals, the application will be assessed under the increased Profit Requirement.

Analyses and Takeaways

The Exchange’s proposal aims to improve the overall quality of Main Board issuers, which will be conducive to promoting post-listing liquidity, increasing investors’ confidence in the market and strengthening Hong Kong’s position as an international financial centre. However, as noted in the Consultation Paper, on average, the proposal would have barred approximately one-third of the listing applications under the current Profit Requirement which are able to meet the Market Capitalisation Requirement.

With such proposed change in sight, it is advisable that prospective listing applicants which intend to benefit from the current Profit Requirement with a lower threshold should seek early legal advice regarding listing plans, including preliminary preparation  such as corporate reorganisation and pre-IPO investments, so that the same can be implemented in an opportune time.

Furthermore, should the change be introduced, it is expected that there may be an influx of applications for listing on the Main Board ahead of the change in the Profit Requirement. As such, as the Rule Amendment Effective Date draws closer, the time required for the Exchange’s vetting of Main Board listing applications may be longer, thus posing uncertainties to and incurring extra costs for listing applicants.

Prospective listing applicants should bear these in mind when planning for listing of their businesses and are advised to take early and effective steps. Meanwhile, companies at an early development stage or small or mid-sized companies may still consider accessing the capital market by utilising a listing on GEM.

Please contact our Partners Mr. Hank Lo or Mr. Rodney Teoh for any enquiries or further information.

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 arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

Our Senior Associate Mr. Terence Lau presented a webinar for The Hong Kong Institute of Chartered Secretaries (“HKICS”) entitled “IPO 101: An Overview of a Listing Project” on 18 November 2020. In this course, Terence offered a detailed explanation of listing criteria as well as suitability for listing. The syllabus dissected IPO projects and included topics such as reorganisation, due diligence, prospectus drafting and share offer. The webinar also gave an overview of the IPO process pre-IPO investment.

Terence specialises in advising listing applicants, sponsors and underwriters in a broad range of corporate finance transactions, including initial public offering on The Stock Exchange of Hong Kong Limited, subsequent share issues, shares placement, rights issue, open offer and convertible bonds. Terence also advises listed issuers on regulatory and compliance matters.

Please contact Mr. Terence Lau for any enquiries or further information.

Mr. Terence Lau (left) and Ms. Polly Wong, Fellow of HKICS (right)