Background 

On 29 November 2023, The Stock Exchange of Hong Kong Limited (“Exchange“) published the Guide for New Listing Applicants (“Guide”), which (1) has consolidated and enhanced all currently effective guidance letters and listing decisions related to new listing; and (2) provides updated guidance to reflect the latest regulatory practice and expected disclosures in listing documents.

The Guide is divided into the following six main sections and an annex of streamlined listing decisions:

1. Eligibility and suitability for listing
2. Special listing regimes
3. Listing document disclosure with guidance on specific sections;
4. Specific topics relating to a new listing application
5. Other listing structures; and
6. Other matters.

Updates

The updated guidance under the Guide is summarised below:

(1) Latest Regulatory Practice

Contractual Arrangements

Generally, where there is no foreign ownership restriction, applicants must not use contractual arrangements for conducting their business. In exceptional circumstances, applicants may be allowed to use contractual arrangements if their non-restricted businesses are inseparable from the prohibited or restricted businesses, and/or are immaterial in terms of revenue, profit or otherwise during the track record period and after listing (see:  paragraph 15 of Chapter 4.1 of the Guide).

Title Certificate Requirements

In the absence of the requisite land use right certificates and/or building ownership certificates (“Title Certificates”) for land and properties involved in an applicant’s business that are significant to its operations (“Relevant Properties“), the Exchange has the discretion to consider, on a case-by-case basis, whether such defect would affect the applicant’s suitability for listing, or can otherwise be addressed by way of disclosure.

To facilitate the Exchange’s assessment, the applicant should provide at least the following:

• Risk of eviction – Whether the applicant has obtained evidence and/or confirmations from all applicable competent authorities that it has the right to use the Relevant Properties.
• Contingency plans – Details and feasibility of the contingency plans (e.g. the availability of alternative project resources in the vicinity).
• Rectification measures – Whether the applicant is in the process of applying for the Title Certificates for the Relevant Properties and any legal impediments to obtaining the same.
• Business / financial impact of the title defects – Risk of material penalties, the revenue contribution from the Relevant Properties, and where applicable, the applicant’s contractual rights to seek indemnification from the relevant parties.
• Internal control – Enhanced internal control measures adopted by the applicant to prevent recurrence of similar incidents.

(See: paragraph 2 of Chapter 4.11 of the Guide)

Over-boarded independent non-executive director (“INED”)

Where an applicant identifies an independent non-executive director who will be holding their 7^th (or more) listed company directorship, the applicant should consider appointing another INED instead (see: paragraph 7 of Chapter 3.10 of the Guide).

Special Purpose Acquisition Companies (“SPAC”)

A SPAC and a Successor Company should seek legal advice on the extent to which its listing document at initial listing and the De-SPAC transaction (as the case may be) must comply with the prospectus requirements of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32). (see: paragraph 10 of Chapter 2.4 of the Guide, changes underlined).

Biological Assets

Since biological assets are living animals or plants that are measured at fair value less costs to sell in accordance with applicable accounting standard, they are subject to high risk, given that they are perishable and their valuation is usually subject to higher uncertainty due to the complex and not-easily-verifiable assumptions adopted. Thus, the Guide clarified that when conducting due diligence,  the sponsor should advise the details of, and steps taken to address, any limitations on due diligence (e.g. limitation in stock take). The Exchange reminds the sponsor and the applicant that serious limitations may render an applicant unsuitable for listing (see: paragraph 4 – Risks and limitations, (ii) of Chapter 4.10 of the Guide, changes underlined).

(2) Updated Guidance on Disclosures in Listing Documents

The updated guidance on disclosures is based on comments commonly raised during the Exchange’s vetting process as a result of recent market developments (e.g. new regulations and/or emergence of new business models such as tech and e-commerce platform industries). The Guide provides the general principles on listing document disclosure and drafting together with guidance on specific sections. In addition, the Exchange has introduced a new chapter on disclosure requirements of Corporate Governance & Environmental, Social and Governance (Chapter 4.3 of the Guide) to help applicants and their advisers consider the relevant issues at an early stage.

Implementation

The Guide will come into effect on 1 January 2024, upon which the corresponding guidance letters and listing decisions will be archived. For future updates, the Exchange will issue new guidance by way of updating the Guide instead of publishing separate / standalone guidance letters and listing decisions.

For the full text, please refer to the Guide.