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Analysis & Insights

Dual Listings on the Hong Kong Stock Exchange for Overseas Issuers

16 Feb 2022

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Introduction to Dual Listing

With the recent mounting tension in Sino-US relations and tightening of policies surrounding listing of securities from both US and China (including the introduction of more stringent audit requirements from the US regulators, and closer supervision and scrutiny by China over cybersecurity rules of Chinese companies listed abroad), Chinese issuers are increasingly looking at the option for a 'homecoming' listing, namely on the Hong Kong Stock Exchange Limited (the "HKSE").

The Dual Listing Regime in Hong Kong

Secondary Listings

In 2018, the HKSE introduced amendments to its listing rules (the "Hong Kong Listing Rules") to: (a) permit listings of companies with weighted voting rights ("WVR") structures; and (b) create a secondary listing route for established issuers to undertake a dual secondary listing on the HKSE (the "2018 Secondary Listing Route").

The 2018 Secondary Listing Route provided an issuer with: (a) a WVR structure, a 'centre of gravity' in Greater China ("Greater China Issuer") and; (b) at least two years of listed status on the New York Stock Exchange, Nasdaq or premium listing on the London Stock Exchange (each, a "Qualifying Exchange"), with an avenue to undertake a dual secondary listing of its shares on the HKSE, provided that the issuer: (i) meets the market capitalisation requirements; (ii) satisfies the definition of 'innovative company'; and (iii) demonstrates to the satisfaction of the HKSE that its shareholders are afforded shareholder protections that are at least 'equivalent to' the standard of protection required under the Hong Kong Listing Rules for other issuers.

Alibaba, which operates one of the world's largest e-commerce platforms, became, in 2019, the first overseas issuer to complete a dual secondary listing on the HKSE.  Alibaba's listing has propelled a wave of dual secondary listings by Greater China Issuers driven by Chinese companies seeking to pursue markets closer to home amid rising tension between the US and China, together with increasing concerns that US regulators may impose stricter requirements for Chinese companies that are listed (or seeking to list) on US stock exchanges.  The Maples Group has acted as Cayman Islands legal advisor on many of the high-profile dual secondary listings, including tech giants Alibaba, JD.com and NetEase, and more recently, Baidu and Trip.com in 2021.

Dual Primary Listings

Overseas issuers unable to meet the requirements for the 2018 Secondary Listing Route (thereby including Greater China Issuers that are not Grandfathered Greater China Issuers (as described further below)) were required to undertake a dual primary listing in order to go public in Hong Kong.  Issuers seeking a dual primary listing must adhere to listing requirements of both Hong Kong and the Qualifying Exchange, facing stricter standards than previous homecoming dual secondary listings.

Two of China's leading electric vehicle makers, Li Auto and XPeng, led a new wave of dual primary listings in Hong Kong for Greater China Issuers with WVR structures in 2021.  The Maples Group acted as Cayman Islands legal advisor to Li Auto on its dual primary listing on the HKSE.

Further Listing Rules Reforms

The HKSE undertook a consultation process in 2021 with a view to enhancing and streamlining its listing regime for overseas listed issuers and, following the end of that process, announced further amendments to the Hong Kong Listing Rules for overseas listed issuers contemplating a dual listing in Hong Kong that became effective on 1 January 2022 (the "2022 Amendments").

While Grandfathered Greater China Issuers and Non-Greater China Issuers with non-compliant WVR structures and / or variable interest entity ("VIE") structures were only permitted to undertake a secondary listing in Hong Kong under the 2018 Secondary Listing Route, they can now apply directly for a dual primary listing on the HKSE pursuant to the 2022 Amendments.

A "Non-Greater China Issuer" refers to a company with its centre of gravity outside of Greater China and that is primary listed on a Qualifying Exchange, whereas a "Grandfathered Greater China Issuer" refers to a company with its centre of gravity in Greater China that is:

a)    primary listed on a Qualifying Exchange on or before 15 December 2017; or

b)    controlled by corporate WVR beneficiaries as at 30 October 2020 and primary listed on a Qualifying Exchange after 15 December 2017 but on or before 30 October 2020.

The key changes implemented under the 2022 Amendments were as follows:

  • The introduction of a common set of core shareholder protection standards applicable to all issuers ("Core Standards"), which aim to provide the same level of protection to all investors / shareholders.
  • Amendments to permit dual primary listings of Grandfathered Greater China Issuers and Non-Greater China Issuers with WVR structures and / or VIE structures that do not comply with the requirements of the Hong Kong Listing Rules that would otherwise apply to companies with such structures.
  •  Amendments to permit secondary listings of Greater China Issuers without WVR structures and that are not able to satisfy the innovative company requirement, subject to satisfying a lower market capitalisation requirement.
  • The codification of certain conditional common waivers for both dual primary listings and secondary listings.

Streamlining Shareholder Protection Standards

Prior to the implementation of the 2022 Amendments, the HKSE adopted different approaches in evaluating whether shareholders of overseas listed issuers were afforded shareholder protection at least 'equivalent to' the standard of protection required under the Hong Kong Listing Rules for other issuers, which were typically based on the place of incorporation of the relevant issuer.  These requirements were scattered across various sections of the Hong Kong Listing Rules and were challenging to navigate.

The 2022 Amendments have consolidated shareholder protection requirements and introduced a common set of Core Standards that are applicable to all such issuers regardless of their place of incorporation (including Greater China Issuers) and must be incorporated into the relevant issuer's memorandum and articles of association ("M&As").  These Core Standards concern:

  • the notice and conduct of general meetings (including that the relevant issuer must hold its annual general meeting within six months of its financial year end);
  • members' right to remove directors, requisition a meeting, vote, speak and appoint proxies or corporate representatives;
  • the reservation of auditor appointment to a committee that is independent of both the board of directors of the issuer or the majority of its shareholders;
  • restrictions on the term of any director appointed to fill a casual vacancy;
  • a requirement for a 'super-majority vote' of at least three-quarters of the voting rights of the shareholders voting in person or by proxy at the general meeting for approving changes to the issuer's constitutional documents or a voluntary winding up;
  • the availability of the shareholders' register for inspection; and
  • requirements for shareholders to abstain from voting on certain matters (e.g. where the shareholder has a material interest in the matter being considered).

Prior to the introduction of the 2022 Amendments, the queries raised by the HKSE in relation to whether or not the M&As of an issuer incorporated shareholder protection standards at least equivalent to the standard of protections required under the Hong Kong Listing Rules for other issuers were often wide-ranging and varied depending on the specific wording included in the relevant issuer's then-effective M&As.

The introduction of the Core Standards provides greater clarity around the shareholder protection standards expected by the HKSE, which has streamlined the process and is expected to be welcomed by issuers.

Importantly, it should be noted that the Core Standards also apply to existing listed issuers in Hong Kong, which are required to make all necessary changes to their M&As to align with the Core Standards by no later than their second annual general meeting occurring after 1 January 2022.

Dual Primary Listing of Grandfathered Greater China Issuers and Non-Greater China Issuers

Grandfathered Greater China Issuers and Non-Greater China Issuers may, from 1 January 2022, apply directly for a dual primary listing on the HKSE while maintaining their non-compliant WVR structures and / or VIE structures, as long as they meet certain eligibility and suitability requirements under the Hong Kong Listing Rules.  Specifically, the relevant issuer must:

  • demonstrate that they are an innovative company, i.e. operating an internet or other high-tech business;
  • have a good track record of regulatory compliance of at least two full financial years on a Qualifying Exchange; and
  • have a market capitalisation of at least: (i) HK$40 billion; or (ii) HK$10 billion and revenue of at least HK$1 billion for the most recent financial year.

It is anticipated that the implementation of the 2022 Amendments will encourage more US-listed Greater China companies to seek a dual primary listing in Hong Kong going forward.

Removal of the Innovative Company Requirement for Non-WVR Secondary Issuers

Prior to the introduction of the 2022 Amendments, as mentioned above, a Greater China Issuer could only apply for a secondary listing on the HKSE if it was an innovative company. The 2022 Amendments allow an overseas company (including a Greater China Issuer) without a WVR structure to apply for a secondary listing on the HKSE, whether or not it meets the definition of an innovative company.

Although Greater China Issuers with WVR structures will still be subject to the innovative company requirement and the other requirements for a dual primary listing as set out above, the relaxation of the rules for companies without a WVR structure will encourage and facilitate the secondary listing of Greater China Issuers operating in non-innovative industries on the HKSE (as such, issuers previously only had the option to undertake dual primarily listings).

Cayman Islands Issuers

The dual listings of successful and high-growth 'new economy' Chinese companies in recent years have helped to diversify the Hong Kong market.  A Hong Kong listing for US-listed Greater China Issuers also acts as a hedge against the rising geo-political tension between US and China.  Listing in Hong Kong provides a gateway for such issuers to grow their investor base in China and the introduction of the 2022 Amendments will make Hong Kong an even more attractive capital-raising hub for foreign-listed Greater China Issuers (for their homecoming listings).

The Cayman Islands has historically been favoured as a domicile for listed companies due to the flexibility of its legal and regulatory environment, allowing companies to adapt to the rules and requirements of the equity capital markets of the jurisdictions in which such companies are either listed or conduct substantive operations.

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