HKEX amends Listing Rules for PRC issuers

Background

The Stock Exchange of Hong Kong Limited (Exchange) published its consultation paper on 24 February 2023, seeking views and comments on proposed changes to the Rules Governing the Listing of Securities on the Exchange (Listing Rules) to reflect updates and changes to PRC¹ regulations and other proposed Listing Rules amendments relating to PRC issuers (Consultation Paper).

On 21 July 2023, the Exchange announced its consultation conclusions on the Consultation Paper (Consultation Conclusions). The amendments will take effect on 1 August 2023.

The amendments were driven by the introduction of a new regulatory framework for the overseas listing of PRC enterprises, namely the "Decision of the State Council to Repeal Certain Administrative Regulations and Documents" issued by the State Council of the PRC on 17 February 2023, and the "Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies" and related guidelines issued by the China Securities Regulatory Commission (CSRC) on 17 February 2023 (New PRC Regulations). The New PRC Regulations came into effect on 31 March 2023.

With the implementation of the New PRC Regulations, 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 of the PRC on 4 August 1994 (Special Regulations) and the Mandatory Provisions for Companies Listing Overseas set forth in Zheng Wei Fa (1994) No. 21 issued on 27 August 1994 by the State Council Securities Policy Committee and the State Commission for Restructuring the Economic System (Mandatory Provisions) were repealed. A new filing regime has been put in place which requires PRC companies to register their direct and indirect overseas listing and securities offerings with the CSRC by filing materials on key compliance issues.

The Exchange received 41 non-duplicate responses on the Consultation Paper, of which around 65% were institutional respondents, and slightly less than 35% were individual respondents. In the Consultation Conclusions, the Exchange adopted all the proposals outlined in the Consultation Paper, with minor amendments reflecting respondents' comments.

Key amendments to the Listing Rules

Consequential Listing Rules amendments (not subject to public consultation)

As background, Chapter 19A and Appendix 13D of the Listing Rules were introduced in 1993 to set out additional requirements for PRC issuers listed on the Exchange. These include requirements that reflect specific shareholder protection provisions  (such as those outlined in the Mandatory Provisions) and address issues related to domestic shares and H shares being treated as different classes.

Following the repeal of the Mandatory Provisions, the class distinction between the domestic shares and H shares is removed and the use of arbitration to resolve disputes is no longer required. As such, the Exchange has adopted consequential amendments to the Listing Rules to reflect the changes in the PRC regulatory framework. The amendments are as follows:

Whilst these amendments were not subject to public consultation, some respondents commented on the adverse impact on the interest of H shareholders. They were also concerned about the removal of the requirement to resolve disputes through arbitration, as there is currently no mechanism for the reciprocal enforcement of judgment between Hong Kong and the PRC.

In response, the Exchange stated that the removal of class meeting requirements would ensure the same class of shareholders to be treated equally, and it was never the intention of the Listing Rules to protect minority shareholders with veto powers. With regard to the arbitration mechanism, the Exchange pointed out that the legislative council has passed the Bill for Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance on 26 October 2022, which shall come into effect at a later date.

Other Listing Rules amendments (subject to public consultation)

In addition to the consequential changes, the Exchange has also reviewed Chapter 19A and proposed amendments or removal of requirements that are no longer applicable under the New PRC Regulations. We set out a summary of the amendments in the table below:

Whilst the proposals have received strong support from market participants, some have expressed views on the potential reduction in size and liquidity of the H shares market relative to the A shares market. In response to the suggestion to impose an ongoing public float requirement for H shares after listing, the Exchange said that it will take it into account when reviewing the public float requirements.

Conclusion

With the implementation of the amendments to the Listing Rules, the Exchange aims to streamline the listing regime to provide a consistent framework for the protection of investors regardless of the issuers' places of incorporation.

PRC issuers are reminded to adhere to their existing articles of association, in particular on the requirements on class meetings and other provisions required under the Mandatory Provisions, unless and until they amend their articles of association pursuant to the New PRC Regulations.

¹ For the purposes of this article, “PRC” or “Mainland” or “Mainland China” refers to the People’s Republic of China, other than the regions of Hong Kong, Macau and Taiwan
² “PRC Company Law” refers to the Company Law of the PRC adopted at the Fifth Session of the Standing Committee of the Eighth National People’s Congress on 29 December 1993 and effective from 1 July 1994, as amended, supplemented or otherwise modified from time to time
³ Listing Rule 8.19(2) states that where application for listing is made in respect of any class of securities, if some of the securities of that class are already listed, the application must relate to all further securities of that class issued or proposed to be issued
⁴ “Takeovers Code” refers to the Codes on Takeovers and Mergers and Share Buy-backs published by the SFC as amended from time to time