HKEx Consults on Paperless Listing and Subscription and ...

The updates to Guidance Letter HKEX-GL86-16 emphasise the need for the board of Hong Kong listing applicants to incorporate corporate governance ... HongKongLaw August2020 PDFversion Wordversion HKExConsultsonPaperlessListingandSubscriptionandIssuesNewIPOGuidance TheHongKongStockExchange(HKEx)isconsultingonpaperlesslistingandsubscription,onlinedocumentdisplayandreducingthedocumentsrequiredtobedisplayedfornotifiableandconnectedtransactions.GuidanceLetterHKEX-GL86-16hasalsobeenupdatedtorequirelistingdocumentdisclosurerelatingtotheapplicant’scompliancecultureandINEDsholdingsevenormorelistedcompanydirectorships. ThedeadlineforrespondingtotheConsultationPaper[1]is24September2020.Thekeyproposalswould: requirelistingdocumentstobepublishedinelectronicformonly.Thiswouldapplytoallnewlistingapplicationswhichrequiretheissueofalistingdocumentincludingapplicationsforthelistingofequities(includingstapledsecuritiesanddepositaryreceipts),debtsecuritiesandCIS; requiresubscriptionsfornewlistingstobemadeonlythroughonlineelectronicchannels; replacethecurrentrequirementforcertaindocumentstobephysicallydisplayedwitharequirementthatthesedocumentsaremadeavailableonlineonthewebsitesofHKExandtheissuer;and reducethetypesofdocumentswhichmustbeputondisplayfornotifiableandconnectedtransactions. TheupdatestoGuidanceLetterHKEX-GL86-16emphasisetheneedfortheboardofHongKonglistingapplicantstoincorporatecorporategovernance(CG)andenvironmental,socialandgovernance(ESG)intothelistingprocesssothatthattheapplicantisinapositiontocomplywithHKEx’srequirementsonlisting.Newlistingdocumentdisclosurerequirementsareastatementoftheapplicant’scompliancecultureandtheboard’srationaleforbelievingthatanindependentnon-executivedirector(INED)holdingsevenormorelistedcompanydirectorshipswillbeabletodevotesufficienttimeandattentiontothelistingapplicant. ConsultationPaper:ProposalstoIntroduceaPaperlessListing&SubscriptionRegime,OnlineDisplayofDocumentsandReductionoftheTypesofDocumentsonDisplay PaperlessListingDocumentProposals CurrentListingDocumentRequirements TheListingRulescurrentlyrequireissuersofequities,debtsecuritiesandCIStomakeprintedlistingdocumentsavailableatdesignatedplacesduringtheofferperiod,exceptformixedmediaoffers.TheCompanies(WindingUpandMiscellaneousProvisions)Ordinancerequiresapplicationformstobeissuedwithaprospectuswhichmeansthatapplicationformsarealsomadeavailableinprintedformforissuewithrelatedprospectuses. ElectronicListingDocumentProposal HKExisproposingtoadoptmoreenvironmentallyfriendly,costeffectiveandefficientmeasuresunderwhichlistingdocumentsforthefollowinglistingswillonlybepublishedonlineinelectronicformat: IPOsofequitysecurities,stapledsecurities,depositaryreceiptsandCIS(exceptin“mixedmediaoffers”–i.e.offerswherebyanissuer/aCISofferorcandistributepaperapplicationformsforpublicoffersofcertainsecuritieswithoutaprintedprospectus,providedtheprospectusisavailableonthewebsitesofHKEXandtheissuer/CISofferorandtheprintedprospectusispubliclyavailablefreeofchargeuponrequestatspecifiedlocations); Publicofferingsofdebtsecurities; Listingsbyintroduction;and Reversetakeovers. TheexistingrequirementforpublicationofanelectronicversionofthelistingdocumentonthewebsitesofHKEx(throughEPS)andtheissuerunderMainBoardListingRule2.07(1)(b)(ii)andGEMRule16.17(2)(b)willcontinue.Theelectronicversionwillberequiredtobeaccessibleduringandafterthepublicofferperiodorfortheperiodofalistingbywayofintroduction.ListingdocumentswillnotberemovedfromtheHKExwebsiteoncepublished. Theexistingrequirementsforlistingdocumentstobemadeavailabletothepublicattheaddress(es)notifiedintheformalnoticewillberemoved. NoChangetoProspectusRegistrationRequirement TheproposalwillnotaffecttherequirementforissuerstopresentaprintedcopyoftheprospectusandotherrequireddocumentsforregistrationbytheRegistrarofCompaniesundersection38Dandsection342CoftheCompanies(WindingUpandMiscellaneousProvisions)Ordinance. PaperlessSubscriptionProposals Inpublicofferingsofequities(exceptMixedMediaOffers)andCIS,applicationsforsubscriptionwillonlybeallowedthrough: aneIPOserviceprovider’sonlineplatform;or theCCASS[2]eIPOservice,eitherbyinstructingbrokersorcustodianstogiveelectronicapplicationinstructionsorbygivingelectronicapplicationinstructionstoHKSCCthroughCCASS. GiventheproposedListingRuleamendmenttorequirelistingdocumentstobepublishedonlyonlineandtherequirementoftheCompanies(WindingUpandMiscellaneousProvisions)Ordinancethatapplicationformsmustbemadeavailablewiththerelatedlistingdocument,applicationformswillneedtobemadeavailableinelectronicformatonly. Therewillbenochangetothecurrentsubscriptionchannelsforpreferentialofferingswhichlackestablishedelectronicchannelssuchasemployeeofferingsandassuredentitlementofferingstoqualifiedshareholders.Theproposalwillalsonotaffectexistingestablishedchannelsfor: subscriptionofpubliclyoffereddebtsecuritiesthroughplacingbanksand/orHKSCC;and investmentsinstructuredproductslistedunderChapter15AoftheMainBoardListingRules. DocumentstobeDisplayedOnline CurrentDisplayRequirementsonListingandforNotifiableandConnectedTransactions ListingapplicantsarerequiredtodisplayvariousdocumentsforphysicalinspectionunderthecurrentListingRulesincludingmaterialcontracts,certaindirectors’servicecontracts,experts’consentsandstatementsofadjustments.Listedissuersmustalsoputdocumentsondisplaywhentheyproposetoenterintonotifiableorconnectedtransactionswhichrequireshareholders’approval. HKExisproposingtoreplacetherequirementforphysicaldisplayofcertaindocumentswitharequirementforissuerstopostthedocumentsonlineonthewebsitesoftheHKEx(viaEPS)andtheissuerforthesameperiodoftimeasiscurrentlyrequiredforphysicalinspection. Thedocumentscurrentlyrequiredtobedisplayedfornotifiableandconnectedtransactionsaresummarisedinthetablebelow: NotifiableTransactions:MajorTransactions,VerySubstantialAcquisitionsandDisposals ConnectedTransactions Allmaterialcontracts Allcontractsreferredtointheconnectedtransactioncircular Issuer’sconstitutionaldocuments Directors’servicecontracts(unlessexpiringordeterminablebytheemployerwithin1yearwithoutpaymentofnon-statutorycompensation) Issuer’sauditedaccountsfor2financialyears   Notifiableandconnectedtransactioncircularsissuedsincelatestpublishedauditedaccounts   Expertreports,lettersorvaluationsextractedorreferredtointhecircularandstatementsofadjustmentssignedbythereportingaccountants(expertreports)   ReductionofNumberofDocumentsDisplayedforNotifiableTransactions HKExisproposingtoremovetherequirementforissuersproposinganotifiabletransactiontodisplaydocumentswhicharealreadyrequiredtobepostedonlinebyotherListingRuleprovisions,namelytheirconstitutionaldocuments,previoustwofinancialyears’auditedaccountsandnotifiableandconnectedtransactioncircularsissuedbytheissuersincethedateofitslatestpublishedauditedaccounts. Itisalsoproposingto: requireissuerstodisplaycontractspertainingtothenotifiabletransaction; removetherequirementtodisplayallmaterialcontractsenteredintobytheissuerovertheprevious2yearsalthoughasummaryofthematerialcontractswillstillneedtobeincludedinthetransactioncircular;and retaintherequirementtodisplayexpertreports. RevisedDisplayDocumentsforConnectedTransactions HKEx’sproposalsinrelationtothedocumentsrequiredtobedisplayedforconnectedtransactionssubjecttoshareholders’approvalare: tomakeclearthatissuersarerequiredtodisplaythecontractspertainingtothetransactions(ratherthancontractsreferredtointheconnectedtransactioncircular);and toremovetherequirementforissuerstodisplayrelevantdirectors’contracts,althoughasummaryofthesecontractswillstillberequiredinthetransactioncircular. RedactionofDocumentsonDisplay TheConsultationPaperacknowledgesthatmakingdocumentsondisplaymoreaccessiblemayleadtomorerequestsforredaction.HKExnotesthatissuersmaymakeredactionrequestswheretheybelieveitisnotintheirinterestforcertaininformationcontainedinthedocumentstobemadepublic. RequestsfordisclosurereliefareapparentlyrareandaredecidedbyHKExcase-by-casebasedonitsconsiderationofthefollowingfactorssetoutinitsguidanceonwaivingdisclosure[3]: whethertheinformationisofminorimportanceonlyandwillnotinfluencetheassessmentoftheissuer’sassetsandliabilities,financialposition,profitsandlossesandprospectsand,whererelevant,theimpactofthetransactioninquestion; whetherdisclosurewouldbe(a)contrarytothepublicinterestor(b)seriouslydetrimentaltotheissuerandtheomissionoftheinformationisnotlikelytomisleadinvestorswithregardtothefactsandcircumstances,knowledgeofwhichisessentialfortheinformedassessmentofthelistedissuer’ssecurities;and whetheralternativedisclosure(ifany)willenableshareholdersandtheinvestingpublictomakeaproperlyinformedassessmentofthelistedissuer’ssecuritiesortherelevanttransactionand/ortomakeaninformedvotingdecision. TheHKExdoesnotproposeanychangetoitsexistingapproachtoredactionandproposestoallowthisonlyinverylimitedcircumstances.ItplanstoreviseitswaiverguidetoaccommodatetheredactionofdocumentsondisplayinrespectofdataprivacyconcernswhereanissuercandemonstratethatdisclosurewouldbreachthePersonalData(Privacy)Ordinance. DisplayofMaterialContracts TheConsultationPaperalsoraisestheissueofwhethertheonlinedisplayrequirementmightleadtoanincreaseinthenumberofenquiriesastowhethercontractsare“materialcontracts”forthepurposeofthedisplayrequirement. TheListingRulesdefinematerialcontractsasnotbeingcontractsenteredintointheordinarycourseofbusinessenteredintobyanymemberofthegroupwithinthetwoyearsimmediatelyprecedingtheissueofthelistingdocument.TheHKExisnotproposingtomakeanychangetothedefinitionofmaterialcontractundertheListingRulesgiventhatitisinlinewithdefinitionsundertheTakeoversCodeandtheCompanies(WindingUpandMiscellaneousProvisions)Ordinance.ItalsonotesthattheSFCandCompaniesRegistryrequireonlinepublicationofmaterialcontractsandthatthisdoesnotappeartohavecausedproblemsforlistedcompanies. NoRestrictiononDownloadingorPrintingDocumentsonDisplay HKExisnotproposingtorestricttheabilitytodownloadand/orprintdocumentsthatarepublishedonline.ItpointstothepracticesoftheCompaniesRegistryandtheSFCinnotrestrictingdownloadingorprintingofdocumentsmadeavailableonline.WhiledocumentsrelatedtotakeoversareremovedfromtheSFCwebsiteaftertheofferperiodhasclosed,theycanbedownloadedandprintedduringtheperiodtheyareavailableonline. AccessIdentification ThereisnoproposalforHKExtoputasysteminplacetoallowissuerstoidentifywhohasaccessedtheirdocumentsdisplayedonline. HousekeepingChanges MinorchangeswillbemadetoMainBoardRules13.52and13.52A(GEMRules17.53and17.53A)tomakeclearthatdocumentsrequiredtobesubmittedtoHKExforpre-vettingcanbesubmittedbyelectronicmeansandthatprinteddocumentsarenotrequired. OtherHKExPaperlessInitiatives HKExalsoplanstoreduceitsuseofpaperthroughtheintroductionofe-Forms,namelyAnnouncementFormsandGMe-Forms. AnnouncementForms Initially,announcementformswillreplacethreetypesofroutineannouncements,i.e.thosefor: acashorscripdividend; abonusissueofsharesorwarrants;and thedateofaboardmeeting AsampleofacashdividendannouncementformisincludedatAppendixIIoftheConsultationPaper. HKExproposestorolloutfurtherannouncementformsinduecourse. GeneralMeetinge-Forms HKExwillintroduceaGeneralMeetinge-Form(asampleofwhichisincludedatAppendixIIIoftheConsultationPaper).SubmissionofthisformwillbeaneligibilityrequirementforacceptanceofEligibleSecuritiesinCCASS. OnlineListingRuleBook HKExwillceaseproductionofprintedversionsoftheListingRuleswhichwillbeavailableonlineforfree. PromotionofElectronicCommunicationwithHKEx WiththeexceptionofcertaindocumentswhichHKExwillcontinuetorequireinprintedform(e.g.FormB–theDeclarationandUndertakingwithregardstoDirectors),HKExwillrequirealldocumentstobesubmittedusingelectronicmeans. UpdatedGuidanceLetterHKEx-GL86-16onCorporateGovernanceandESGDisclosure HKExhasalsoreviseditsguidanceforIPOlistingdocumentstohighlighttheimportanceofbuildingcorporategovernance(CG),andenvironmental,socialandgovernance(ESG)mechanismsintothelistingprocesses.TherevisedGuidanceLettercontainsthefollowingadditionaldisclosurerequirements. BusinessSectionDisclosureofComplianceCulture(sectionE,3.2) Paragraph3.2ofsectionErequiresthe“Business”sectiontoincludeastatementofthelistingapplicant’scomplianceculturethatshouldincludethemeasuresandprocessesadoptedtoensurethatthecompliancecultureisembeddedintoitseverydayworkflowandsetsexpectationsforindividualbehaviouracrosstheorganisation. AppointmentofDirectorsandIndependentNon-executiveDirectors(sectionE,3.7(a),(b)andsectionH,3.7and3.8) TheGuidanceLetterremindslistingapplicantsoftheimportanceofestablishingmechanismswellinadvancetoenablethemtocomplywiththeHKEx’srequirementsonCGandESGuponlisting.Directorsareexpectedtoformulatethesemechanismsandrelatedpolicies.HKExrecommendsappointingdirectorsandindependentnon-executivedirectorsasearlyaspossiblesothattheycanbeinvolvedinformulatingCGandESGmechanismsandpolicies.  HKExhasalsoaddedarequirementtodiscloseinthesectiononDirectors,SupervisorsandSeniorManagementthereasonswhytheboardbelievesthatanindependentnon-executivedirectorholdingseven(ormore)listedcompanydirectorshipswouldbeabletodevotesufficienttimeandattentiontothelistingapplicant’saffairs. [1]HKEx.July2020.ConsultationPaper:Proposalstointroduceapaperlesslisting&subscriptionregime,onlinedisplayofdocumentsandreductionofthetypesofdocumentsondisplay.Availableat:https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultations/2016-Present/July-2020-Paperless-Listing/Consultation-Paper/cp202007.pdf [2]CentralClearingandSettlementSystemestablishedandoperatedbytheHongKongSecuritiesClearingCompanyLimited(HKSCC) [3]Paragraph8(Applicationfordisclosurerelief)oftheGuideonApplicationsforWaiversandModificationsoftheListingRules(28November2008) Thisnewsletterisforinformationpurposesonly. Itscontentsdonotconstitutelegaladviceanditshouldnotberegardedasasubstitutefordetailedadviceinindividualcases. Transmissionofthisinformationisnotintendedtocreateandreceiptdoesnotconstitutealawyer-clientrelationshipbetweenCharltonsandtheuserorbrowser. Charltonsisnotresponsibleforanythirdpartycontentwhichcanbeaccessedthroughthewebsite. Ifyoudonotwishtoreceivethisnewsletterpleaseletusknowbyemailingusatunsubscribe@charltonslaw.com BoutiqueTransactionalLawFirmoftheYear2021 AsianLegalBusinessAwards Charltons DominionCentre,12thFloor 43-59Queen’sRoadEast HongKong Tel:+(852)29057888 Fax:+(852)28549596 www.charltonslaw.com Charltons–HongKongLaw–513–03August2020 HongKongLaunchesHangSengTECHIndexHKExPublishesListingDecision126-2020withReasonsforListingApplicationRejections ConsultationPaper:Proposalstointroduceapaperlesslisting&subscriptionregime,onlinedisplayofdocumentsandreductionofthetypesofdocumentsondisplay GuidanceLetterHKEx-GL86-16 PaperlesslistingHKEx ElectroniclistingdocumentHKEx PaperApplicationformHKEx PaperlesssubscriptionHKEx Companies(WindingUpandMiscellaneousProvisions)Ordinance HKExconnectedtransaction HKExnotifiabletransaction HKExdocumentsondisplay MaterialcontractdisplayHKEx RedactdisplaydocumentHKEx HKExannouncementform HKExcorporategovernance HKExEnvironmental,socialandgovernance HKExINED