In December 2012, the Securities and Futures Commission of Hong Kong (SFC), the securities regulatory watchdog in Hong Kong, initiated a new sponsor regime by imposing enhanced conduct requirements on investment banks acting as sponsors in initial public offerings (IPOs) and listings in Hong Kong. In line with the SFC's initiative, The Stock Exchange of Hong Kong Limited (HKSE) published on July 23, 2013, a series of amendments to relevant rules for listings on its Main Board (Main Board Listing Rules) and the Growth Enterprise Market (the GEM Listing Rules; together with the Main Board Listing Rules, the Listing Rules), including guidance materials and revised checklists and templates in relation to listing applications. These amendments to the Listing Rules will implement the SFC's initiative for a new regulatory regime for sponsors in listing applications and IPOs conducted in Hong Kong.
Subject to certain transitional provisions as explained below, the amended Listing Rules will come into effect on October 1, 2013.
This alert highlights and analyzes certain important changes relating to the listing application process and the involvement of sponsors in the IPO process under the amended Listing Rules, in addition to the relevant guidance letters issued by the HKSE.
Changes to the Listing Application Process
Publication of Application Proof
Publication upon the Listing Application Filing. Under the amended Listing Rules, a substantially complete draft prospectus (in both English and Chinese1 versions) (Application Proof—similar to the S-1/F-1 registration statement for U.S. registered deals) is required to be released to the public by publication on the HKSE's website at www.hkex.com.hk through the HKSE's e-Submission System at the same time the listing application is filed with the HKSE. The requirement for such publication of Application Proofs was originally scheduled to take effect on October 1, 2013; however, in order to address unanticipated issues in the new vetting process, the SFC and the HKSE have agreed to suspend the publication of Application Proofs for six months (Suspension Period), from October 1, 2013, to March 31, 2014, inclusive of both days.
The requirement to file an Application Proof is a significant change from the current regime of only publishing a Web Proof Information Pack (WPIP), which is a near-final draft prospectus made public electronically shortly before the roadshow, only after the listing hearing rather than at the time of the listing application.
PHIP Publication After Listing Hearing. The current requirement of publishing the WPIP after the listing hearing will be replaced with a new requirement to publish a Post-Hearing Information Pact (PHIP). Under the new regime, a PHIP is required to be published on the HKSE's website upon the receipt of a post-hearing letter2 from the HKSE and no later than the earlier of (i) the distribution of the red herring document, (ii) the commencement date of the institutional book-building process, and (iii) the publication of similar information by the listing applicant overseas if it has also scheduled a dual listing of its securities on an overseas exchange at or around the same time.
Confidential filing. Limited exceptions to the publication requirements for the Application Proof are available, including:
Waiver for the listing application by a qualified overseas listed company. Confidential filing of an Application Proof is permitted under the amended Listing Rules where the listing applicant (i) has already been listed on an overseas stock exchange recognized by the HKSE (such as the New York Stock Exchange, NASDAQ, or the London Stock Exchange)3 for five years or more and (ii) has a market capitalization of not less than USD200 million.
Case-by-case waiver by the HKSE or SFC. The HKSE guidance letter GL57-13 provides information on the factors on which the HKSE or the SFC may consider waiving or modifying the publication requirement of an Application Proof (e.g., where the publication of an Application Proof will conflict with the laws of the foreign jurisdiction in which the listing applicant is subject to or a spin-off from an overseas listed parent company). However, this is not automatic, and the HKSE and the SFC will consider such waivers on a case-by-case basis.
Omission of Certain Information. In order to avoid any conflict with or breach of the pre-vetting and registration requirements for the publication and distribution of a prospectus under the laws of Hong Kong, an Application Proof published on the HKSE's website may omit and/or redact certain information such that the published Application Proof will not constitute a prospectus or an advertisement under the Companies Ordinance of Hong Kong or an invitation to the public in breach of the Securities and Futures Ordinance. The HKSE guidance letter GL56-13 provides guidance on what information must be omitted and/or redacted in an Application Proof (e.g., information on the offering statistics, price, or means to subscribe for an applicant's securities).
Other Transitional Arrangements
Three-day initial check. From October 1, 2013, to September 30, 2014 (Transitional Period), the HKSE will implement a three-day initial check process for all listing applications and will only accept a listing application for further detailed review if the HKSE and SFC consider it to be "substantially complete" pursuant to a prescribed checklist as set forth in Table B of HKSE's guidance letter GL56-13. This is intended to be a substantially mechanical check of basic disclosures in the Application Proof and limited qualitative assessment will be carried out. Nevertheless, the HKSE emphasizes that the Application Proof may be returned for not being substantially complete at any stage during the review process, either during the three-day check period or after the listing application has passed the initial check and been accepted for vetting. Any shortcomings (if known) in the listing applications may not be rectified during the three-day initial check period in order to encourage the filing of "substantially complete" Application Proofs.
During the Transitional Period, Application Proofs will be published on the HKSE's website and detailed vetting will commence only if the HKSE decides to accept the application after the three-day initial check.
During the first six months of the Transitional Period, the HKSE and the SFC will review (i) the effectiveness of the arrangement of having a three-day initial check period before publication of Application Proofs, and (ii) the duration of the Transitional Period. The SFC's prior consent is required for any decision to remove or continue the three-day initial check after the first six months of the Transitional Period. A separate announcement on the results of the review will be made in due course.
Disclose the Names of Applicant and Sponsor(s) of Any Returned Listing Application. If a listing application is returned on the grounds that the Application Proof is not substantially complete (Returned Application), the names of the applicant and sponsor(s) will be published on the HKSE's website. However, this practice will be suspended during the Suspension Period. After the Suspension Period (i.e., effective from April 1, 2014), in the case of a Returned Application, the name of the applicant and sponsor will be published on the HKSE's website, along with the date of the decision to return an application.
The initial fee paid to the HKSE will be forfeited in the case of applications returned after the first comment letter has been issued.
Eight-Week Moratorium on the Returned Applications
From October 1, 2013, if an Application Proof is returned at any stage as being not substantially complete, a moratorium of eight weeks will be imposed before the listing application can be re-submitted. The eight weeks will start from the date on which the application is returned. Nonetheless, if a new sponsor or co-sponsor is engaged during the eight-week moratorium period, the listing applicant must wait for two months from the date on which the new sponsor/co-sponsor is engaged before it may re-submit its listing application. See further discussions below under the section "New Requirements on the Sponsor Involvement (Engagement, Termination, and Declaration)."
Review Process for Decisions on the Returned Applications4
The amended Listing Rules provide for accelerated procedures for reviewing (i) the Listing Division's decision to make a Returned Application (Return Decision), and (ii) the Listing Committee's decision that endorses the Return Decision (Endorse Decision).
The listing applicant and/or the sponsors will be entitled to a review process to challenge the Return Decision and/or the Endorse Decision. In the first instance, a written request by a listing applicant and/or the sponsor(s) may be made on a Return Decision to the Listing Committee. If the Listing Committee disagrees with the Return Decision, the listing applicant will be allowed to resume its listing application process.
If an Endorse Decision is reached by the Listing Committee, the listing applicant and/or the sponsors can choose to submit a second written request to the Listing (Review) Committee for review on the Endorse Decision. The decision then reached by the Listing (Review) Committee is conclusive and binding on the listing applicant and/or the sponsor(s).
Streamlined Application Process
In contrast to the U.S. Securities and Exchange Commission (SEC) registration process, the HKSE requires a significant number of documents to be filed in addition to the draft prospectus when the listing application is made. Along with the amendments to the Listing Rules, the HKSE will streamline the listing application process by accelerating the submission schedule of various documents. The current regime for submission of documents after the listing application will be replaced by a new schedule for document submissions set out in HKSE guidance letter GL55-13.
During a typical review process, two rounds of comments from both the HKSE and the SFC are generally expected, although there may be a third round if, for example, material information is submitted subsequently. The first comment letter should be expected 10 business days after the receipt of the listing application by HKSE.
New Requirements on the Sponsor Involvement (Engagement, Termination, and Declaration)
Under the amended Listing Rules, the sponsor (or in the case of multiple sponsors, the sponsor last appointed) must be appointed at least two months before the submission of the listing application. Each sponsor must notify the HKSE of its appointment and submit a copy of its engagement letter. Existing sponsors of listing applicants whose listing applications are scheduled to be made immediately after October 1, 2013, must notify the HKSE as soon as possible even though their engagements may have commenced prior to October 1, 2013.
If a sponsor ceases to act for the listing applicant at any time after its appointment (whether or not the listing application has been submitted), it must inform the HKSE in writing and explain the reasons for its cessation as soon as practicable.
To ensure that a listing applicant will assist and facilitate the sponsor in satisfying the sponsor's obligations and responsibilities under the Listing Rules, the amended Listing Rules provides for certain mandatory provisions in a sponsor's engagement letter, such as obligation of the listing applicant and its directors to fully assist the sponsor in performing its due diligence work and to enable the sponsor to gain access to all relevant records in connection with the preparation of the listing application.
In light of the requirement for producing a substantially complete prospectus by the initial submission of the listing application, there will be some amendments to the forms of declarations and undertakings that sponsors must give. Notably, under the amended declaration and undertaking, the sponsors are required to report to the HKSE as soon as practicable when they become aware of any material information relating to the listing applicant or the listing application that concerns non-compliance with the Listing Rules or other legal or regulatory requirements relevant to the listing applicant.
Amendments to the Main Board Listing Rules can be downloaded at:
Amendments to the GEM Listing Rules can be downloaded at:
The HKSE's Guidance Letter GL57-13, which provides guidance on logistical arrangements for publication of Application Proofs, PHIPs, and related materials on the HKSE's website for listing applicants can be downloaded at:
The HKSE's guidance letter GL56-13, which provides guidance on (i) disclosure requirements for substantially complete Application Proofs, (ii) a three-day checklist for disclosure matters that the HKSE will check in Application Proofs prior to acceptance, and (iii)) publication of Application Proofs and PHIPs on the HKSE's website can be downloaded at:
The HKSE's guidance letter GL 55-13, which provides guidance on documentary requirements and administrative matters for new Listing Application (equity), can be downloaded at:
This WSGR Alert provides a summary of various amendments to the Listing Rules and new and updated guidance materials in relation to the new sponsor regime promulgated by the HKSE. Specific legal advice should be obtained in relation to any issues in connection therewith. For more information on this briefing or any related matters, please contact any of the following lawyers in the China Practice of Wilson Sonsini Goodrich & Rosati: Weiheng Chen, Zhan Chen, Kefei Li, Khoon Jin Tan, or Yurong Ye.
The firm's Hong Kong law practice currently operates through Chen & Associates, a firm of solicitors associated with Wilson Sonsini Goodrich & Rosati, P.C. (Hong Kong).