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Key Messages:

  • A company wishing to go public in Hong Kong can apply to list either on the Main Board or the Growth Enterprise Market (GEM) of the Stock Exchange of Hong Kong Limited (SEHK).
  • Initial Public Offering (IPO) is the most common method of listing. Listing by introduction is another way.
  • Companies list their businesses using different structures such as limited companies, trust companies, investment companies and structures with a trust element. Securities issued by these structures include shares, Hong Kong depositary receipts and stapled securities.
  • The SEHK is the front-line regulator of listing-related matters and approves listing applications while the SFC, under the "dual filing" system, has the right to comment on draft listing documents and a reserve power to object to a listing application.

In Hong Kong, when a company wishes to go public, it applies for listing either on the Main Board or the Growth Enterprise Market (GEM) of the Stock Exchange of Hong Kong Limited (SEHK). The two markets target different types of companies and have different listing requirements.

In general, the Main Board is for more established companies and has more stringent financial requirements such as at least three years of track record and profits of HK$50 million in the past three years. GEM, on the other hand, targets growth companies from all industries and sizes that may not have a track record, but the GEM Listing Rules requires companies to have at least twenty-four months of active business.

A company may list on the SEHK in various ways. Initial Public Offering, IPO, is a commonly known method whereby shares in a company are offered. Generally speaking, an IPO can be conducted by way of public subscription or placing or a combination of both. For public subscription, an investor will subscribe for shares in a company by using white forms, yellow forms or eIPO (these arrangements are more fully described in other sections). For a placing, a company will offer the shares to persons selected by the underwriters.

Often, the securities being offered to the public may consist of new shares issued by a company and/or a portion of existing shares held by certain shareholders prior to listing. Generally these are existing major shareholders who intend to cash out part of their shareholdings at the time of the IPO. If a company offers new shares during an IPO, the funds raised from the issue of new shares will generate proceeds for a company's future use. Funds raised from the sale of existing shares will be for the benefit of those existing shareholders only.

Other than IPO, a company may also list on the SEHK by way of introduction. In such case, the company's securities are already widely held by a large number of shareholders prior to listing so that there will be no offer of securities to the public. Also, a company will not raise funds through this way of listing.

Companies can get their businesses listed using different structures. The most popular one is listing as limited companies, including investment companies.

Investment companies get listed on the Main Board of the SEHK in accordance with Chapter 21 of the Listing Rules. As the name suggests, they primarily make investments in listed or unlisted securities or other collective investment schemes, and do not engage in any other active business.

Business enterprises can also be set up as a trust instead of a company. Any business that is set up as a trust and seeks to list in Hong Kong must comply with the same standards of regulation on a par with those for listed companies.

Most of listed structures issue shares. Where a business is established as a trust, it can list as a trust company or stapled securities where the trust units are stapled with shares in a company.

Foreign companies already listed on overseas exchanges can issue Hong Kong Depositary Receipts (HDRs) as a way to tap the Hong Kong capital market. Trading HDRs has also become one of the channels for local investors to get exposure to foreign companies.

The Current Regulatory Regime

The SEHK, as the front-line regulator of listing-related matters, considers whether a company is eligible for listing and approves listing applications. The sponsor, who is appointed by a company wanting to list, has to submit all the relevant information, including financial information prepared by professional accountants, and has to ensure that the information is not false or misleading.

Under the "dual filing" system which establishes the SFC as the statutory regulator of corporate disclosure, listing applicants will also authorise the SEHK to file the materials submitted with the SFC on their behalf. The SFC has the right to comment on the draft listing documents and it has a reserve power to object to a listing application if the information published in the documents is insufficient or misleading.