HKEX proposes listing rule changes to crack down on backdoor listing
The Hong Kong Stock Exchange (HKEX) has published a consultation paper on backdoor listing, continuing listing criteria and other rule amendments. The proposals do not contain major surprises, many of which are already set out in guidance letters and listing decisions issued in the last few years, and therefore the proposed amendments can be viewed largely as an exercise to codify the previous guidance, with limited tightening and fine-tuning. The consultation will close on 31 August 2018 and the Securities and Futures Commission (SFC) has expressed support for the proposals.
This latest consultation paper forms part of a broader series of actions taken by the regulators in Hong Kong to address their concerns over "backdoor" listing activities and the creation of "shell" companies (i.e., listed companies which do not have a substantial business but maintain their listing status to be purchased by buyers which wish to go public but are unable or unwilling to go through the "front door" to seek a listing status).
We have already seen several major changes to the listing rules in the last 12 months to address these concerns, including:
- reforms aimed at curbing highly dilutive capital raising activities (see our alert and note the related rule amendments took effect on 3 July 2018);
- introducing a more robust delisting mechanism which allows the HKEX to delist an issuer with prolonged suspensions (note the related rule amendments will take effect on 1 August 2018); and
- tightening the GEM new listing requirements to curb sharp share price movements of GEM shares shortly after their trading debut (note the related rule amendments took effect on 15 February 2018).
In this alert, we summarise the notable features in the proposed rule changes.